If Julius has a 32 percent tax rate and a 9 percent after-tax rate of return, a $34,000 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 the discount factor table in Exhibit 3.1, we find that the discount factor for two years at a 9 percent after-tax rate of return is 0.818. Therefore, the future value of the $34,000 tax deduction is $27,812 ($34,000 x 0.818). 
The amount of tax saved in today's dollars is the present value of the future tax savings. 
PV = FV / (1 + tax rate)
PV = $27,812 / (1 + 0.32)
PV = $20,979.31
Therefore, the answer is B) $9,161.

If Julius Has a 32 Percent Tax Rate and a 9