Kimani sells life insurance and is considering buying a $50,000 Cadillac for business purposes (thus, the expense reduces her taxable income). If Kimani is in the 40 percent marginal tax bracket, how much after-tax income will she have to give up in order to enjoy the Cadillac?

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Quizplus · Accepted Answer

The cost of the Cadillac is $50,000. Since it is a business expense, it reduces her taxable income by $50,000. With a 40% tax bracket, she saves $20,000 in taxes ($50,000 x 40%). Therefore, the after-tax cost is $50,000 - $20,000 = $30,000.

Kimani Sells Life Insurance and Is Considering Buying a $50,000