If Thomas has a 40% tax rate and a 6% 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 in the text.(Round present and future value amounts to 3 places)

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Quizplus · Accepted Answer

To find the tax cost in today's dollars, calculate the present value of the tax amount. The tax on $50,000 is $20,000 (40% of $50,000). Using a 6% discount rate over 5 years, the present value factor is approximately 0.747. Thus, $20,000 * 0.747 = $14,940.

If Thomas Has a 40% Tax Rate and a 6