If Thomas has a 37 percent tax rate and a 6 percent after-tax rate of return, $50,000 of income in five years will cost him 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 formula in Exhibit 3.1, the discount factor for five years at 6 percent is 0.747. Therefore, $50,000 in five years is worth $37,350 today. Thomas's tax rate of 37 percent means he will pay $13,820 ($37,350 x 0.37) in taxes in today's dollars. Therefore, the correct choice is D.

If Thomas Has a 37 Percent Tax Rate and a 6