Angela Jones is considering two investments. The first produces $5,000 of tax-exempt income. The second produces income that will be subject to tax at a rate of 15%. Which of the following statements is true regarding Angela's choice?

Question

Quizplus · Accepted Answer

To determine the better investment, calculate the after-tax income for the second investment and compare it to the tax-exempt income of the first. For $5,500 of before-tax income at a 15% tax rate, the after-tax income is $5,500 - ($5,500 * 0.15) = $4,675, making the first investment better. For $6,500 of before-tax income at a 15% tax rate, the after-tax income is $6,500 - ($6,500 * 0.15) = $5,525, making the second investment better. Therefore, both statements are true.

Angela Jones Is Considering Two Investments