Assuming an after-tax rate of return of 10 percent, John should prefer to pay an expense of $85 today instead of an expense of $100 in one year. Use Exhibit 3.1.

Question

Quizplus · Accepted Answer

Using the present value formula: 
PV = FV/(1 + r*t)
PV of $100 in one year at a 10% after-tax rate of return:
PV = $100/(1 + 0.1*1) = $100/1.1 = $90.91

Therefore, paying $85 today is preferred as it has a lower present value than paying $100 in one year.

Assuming an After-Tax Rate of Return of 10 Percent, John