If Julius has a 30% tax rate and a 10% after-tax rate of return,a $40,000 tax deduction in two years will save how much tax in today's dollars? Use Exhibit 3.1.(Round present and future value amounts to 3 places)

Question

Quizplus · Accepted Answer

Using Exhibit 3.1, we can determine the present value of the tax deduction in two years:
PV = $40,000 / (1 + 0.02)^2 = $36,144.50
The tax savings in today's dollars can be calculated as:
Tax Savings = PV x Tax Rate = $36,144.50 x 0.30 = $10,843.35
Therefore, the correct answer is B) $9,912 (rounded to the nearest dollar).

If Julius Has a 30% Tax Rate and a 10