Ms. Kent has $200,000 in an investment paying 8% annual interest. Her marginal tax rate is 40%. Which of the following statements is false?

Question

Quizplus · Accepted Answer

A) Ms. Kent's annual before-tax cash flow from this investment is $16,000 = 200,000 x 0.08
B) If the interest is tax-exempt, Ms. Kent's annual after-tax cash flow is $16,000. This means the entire $16,000 is available for her to use since she does not have to pay any taxes on the interest.
C) If the interest is taxable, Ms. Kent's annual after-tax cash flow is $6,400. This means she has to pay 40% in taxes on the $16,000 interest income, leaving her with $9,600 ($16,000 - $6,400) in after-tax cash flow. This statement is false because it states that Ms. Kent's after-tax cash flow would only be $6,400, which is incorrect.
D) None of these choices are false, except for statement C.

Ms Kent Has $200,000 in an Investment Paying 8% Annual