Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

Question

Quizplus · Accepted Answer

The interest earned is $5,000 (10% of $50,000). If the interest is taxable, Ms. Leik pays 20% tax on $5,000, which is $1,000. The after-tax interest is $4,000 ($5,000 - $1,000). Subtracting the $600 expense, the after-tax cash flow is $3,400 ($4,000 - $600).

MsLeik Has $50,000 in an Investment Paying 10% Annual Interest