Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments.Required:What is the after-tax cost if Isabel pays the $41,000 bill in December? EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates ofReturnYear 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10Year 11Year 12Year 13Year 14Year 154%5%6%7%8%9% 10% 11% 12%0.9620.952 0.9430.9350.926 0.917 0.9090.9010.8930.9250.907 0.890 0.8730.857 0.842 0.8260.8120.7970.8890.864 0.8400.8160.7940.772 0.7510.7310.7120.8550.823 0.7920.763 0.7350.708 0.683 0.6590.6360.822 0.784 0.7470.713 0.6810.650 0.621 0.5930.5670.790 0.7460.7050.6660.6300.596 0.5640.5350.5070.7600.7110.665 0.6230.583 0.5470.513 0.4820.4520.7310.6770.627 0.5820.5400.502 0.4670.4340.4040.7030.6450.5920.5440.5000.460 0.4240.3910.3610.6760.6140.5580.5080.463 0.422 0.386 0.352 0.3220.6500.5850.5270.4750.4290.388 0.350 0.3170.2870.6250.5570.4970.4440.397 0.356 0.3190.2860.2570.601 0.530 0.4690.4150.368 0.3260.290 0.2580.2290.577 0.505 0.4420.3880.340 0.299 0.263 0.2320.2050.555 0.4810.417 0.3620.315 0.275 0.239 0.2090.183

An after-tax cost is the cost on which the factor of the tax effect has been considered which means…

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December?

Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $41,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $41,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 6 percent on her investments. Required: What is the after-tax cost if Isabel pays the $41,000 bill in December?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA3: Time Value Of Money

Section: Chapter Questions

Problem 12E

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