If Julius has a 20% tax rate and a 10% after-tax rate of return, $25,000 of income in three years will cost him how much tax in today's dollars (rounded)?

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Quizplus · Accepted Answer

To find the tax in today's dollars, first calculate the tax on $25,000, which is 20% of $25,000, equaling $5,000. Then, discount this tax amount back to present value using the after-tax rate of return (10%) over three years: $5,000 / (1 + 0.10)^3 = $3,755 (rounded).

If Julius Has a 20% Tax Rate and a 10