Answer:
Hank
a. After-tax income if bill is sent in December
= $30,000 * 0.68 (1 - 0.32) = $20,400
Return on investment of $20,400 * 1.01% = $20,604
b. if bill is sent in January
= $30,000 * 0.65 (1 - 0.35) = $19,500
c. Hank should send the bill in December.
d. with marginal tax rate = 24% next year, after-tax income
= $30,000 * 0.76 (1 - 0.24) = $22,800
e. He should send his bill in January.
Explanation:
a) Data:
Value of legal services for a client = $30,000
Marginal tax rate = 32% this year and 35% or 24% next year
After-tax rate of return = 12%
b) The after-tax income represents the amount of Hank's revenue that remains after tax has been deducted or paid. It is what belongs to Hank after the taxman has taken his cut.
