The after-tax rate of return is 1.84%, the real return is 0.721%, the total monetary return is $1530 and the implications become very challenging to grow with such a return as the taxes
Given that money market account investment at 2.55 percent (APY), a 1.11 % inflation rate, a 28 percent marginal tax bracket, and a constant $60000 balance.
Cash management is the backbone of any business. Cash management ensures that the company operates according to established standards and optimizes the use of funds to avoid wasting resources. Liquidity management decisions are therefore key to preserving a company's capital and profitability.
Firstly, we will find the after-tax return rate, we get
After-tax return rate= Before tax rate of return \times ( 1 - tax rate)
After-tax rate of return = 0.0255× ( 1 - 0.28)
After-tax rate of return = 0.0255×0.72
After-tax rate of return=1.84%
Now, we will find the real return, we get
Real return=((1+After-tax Return)/(1+inflation rate))-1
Real return=((1+0.0184)/(1+0.0111))-1
Real return=(1.0184/1.0111)-1
Real return=1.00721-1
Real return=0.721%
Furthermore, we will find the total monetary return, we get
Total monetary rate=Balance×Before tax rate of return
Total monetary rate=60000×2.55%
Total monetary rate=$1530.
The implications of this result for cash management decisions is that it becomes very challenging to grow with such a return as the taxes and inflation is draining the returns and leaving only with negative returns.
Hence, the after-tax rate of return is 1.84%, the real return is 0.721%, the total monetary return is $1530 and the implications become very challenging to grow with such a return as the taxes and inflation is draining the returns and leaving only with negative returns.
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