If Julius has a 32 percent tax rate and a 10 percent after-tax rate of return, a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1. (Round discount factor(s)to three decimal places.)

Question

Quizplus · Accepted Answer

Using Exhibit 3.1, the discount factor for two years at a 10% after-tax rate of return is 0.826. Therefore, the present value of the $40,000 tax deduction in two years is $40,000 x 0.826 = $33,040. This will save Julius 32% of $33,040 in today's dollars, which is $10,573 (rounded to the nearest dollar). Therefore, the correct answer is B.

If Julius Has a 32 Percent Tax Rate and a 10