If Rudy has a 25% tax rate and a 6% after-tax rate of return,a $30,000 tax deduction in four years will save how much tax in today's dollars? Use Exhibit 3.1 in the text.(Round present and future value amounts to 3 places)
A) $30,000.
B) $7,500.
C) $23,760.
D) $5,940.
E) None of the choices are correct.

Question

Quizplus · Accepted Answer

The tax savings from a $30,000 deduction is $30,000 * 25% = $7,500. To find the present value of this amount in four years at a 6% after-tax rate of return, use the present value formula: PV = FV / (1 + r)^n. So, PV = $7,500 / (1 + 0.06)^4 = $5,940.

If Rudy Has a 25% Tax Rate and a 6