Answer:
correct answer is a. $4,045,400
Explanation:
given data
building cost = $2,000,000
Rehabilitation cost = $2,500,000
discount rate = 5%
factor = 3.546
solution
we get here after-tax cost after claiming the Rehabilitation
so first we get here total cost that is = $2,000,000 + $2,500,000
total cost = $4,500,000
and here tax saving by credit will be
tax saving by credit = $2,500,000 × 20%
here 20% credit is allow for qualify expenditure that is made to rehabilitate
tax saving by credit = $500,000
and here credit spread for 5 year it mean $100,000 per year
so here Current year credit is = $100,000
and Present value of credit for the years 2-5 = $100,000 × annuity factor
= $100,000 × 3.546 = $354,600
so here Present value of credit will be = $354,600 + $100,000
Present value of credit = $454,600
and
After tax cost of credit will be as
After tax cost of credit = $4,500,000 - $454,600
After tax cost of credit = $4,045,400
