Question: An asset purchased for $100,000 with

> During the first eight months of the year, Ms. Layne was self-employed and earned $63,200 net income. In September, she accepted a job with MW Company and earned $75,000 salary through the end of the year.

> Mr. Leonard died on April 16. Mr. and Mrs. Leonard had been married for 11 years and had always filed a joint return. Mrs. Leonard remarried on December 21.

> LSG Company is a calendar year, cash basis taxpayer. On November 1, 2019, LSG paid $9,450 cash to the janitorial service firm that cleans LSG’s administrative offices and retail stores. How much of this expenditure can LSG deduct in 2019 assuming that: a

> Hastings Corporation has a foreign subsidiary conducting a manufacturing business in Country Z, which has a 15 percent corporate income tax. The IRS recently challenged the transfer price at which Hastings performs managerial services for the subsidiary

> Lincoln manufactures paper products in the United States and sells the products internationally. Because most of its foreign sales are in hightax jurisdictions, Lincoln has excess foreign credits from its paper business. This year, Lincoln earned $8 mill

> Funk Corporation conducts business in a foreign jurisdiction that imposes a 1 percent tax on gross receipts from sales within the jurisdiction. This year, Funk paid $750,000 gross receipts tax to the jurisdiction.

> Homely Corporation operates a fleet of oceangoing cargo vessels. During the year, one Homely vessel was docked at its home port in New Orleans for 55 days, was on the high seas for 120 days, and was docked at various foreign ports of call for the remaini

> Benton is a consulting firm with its headquarters in New York City. This year, it entered into a consulting contract with a multinational corporation. Mrs. Kalle, an employee, spent 33 days working at Benton headquarters, 28 days in London, 50 days in Pa

> The United States has a tax treaty with the United Kingdom that provides certain tax benefits to UK corporations conducting business in the United States. The United States does not have an income tax treaty with Chile. Silas Company, a Chilean firm that

> Durbin Corporation is incorporated and has its commercial domicile in State N. This year, Durbin sold its manufactured products to customers in State N (61 percent of sales), State O (28 percent of sales), and State P (11 percent of sales). Durbin has ne

> ABC operates a meat and poultry business. The corporation distributes its products in six states and pays income tax to each based on the meat and poultry income apportionable to each. Last year, ABC invested in a motion picture. The picture was a commer

> For many years, Bertrand Inc. owned a foreign subsidiary with over $8 million accumulated foreign source income (on which Bertrand has never paid U.S. tax). Immediately prior to December 31, 2017, Bertrand Inc. sold its investment in the foreign subsidia

> Williams Inc. is a U.S. corporation that manufacturers toys in a factory located near Milwaukee, Wisconsin. Williams sells the toys to its foreign subsidiary, which is incorporated in Carnema, a Caribbean country with no corporate income tax. Williams ac

> In 2019, Wilma Way’s sole proprietorship, WW Bookstore, generated $120,000 net profit. In addition, Wilma recognized a $17,000 gain on the sale of business furniture and shelving, all of which was recaptured as ordinary income. The business checking acco

> State E wants to encourage the development of a local wine industry. Consequently, it decreased its excise tax rate on retail sales of locally produced wines to 3 percent. The state’s excise tax on wines produced out-of-state but sold in-state is 10 perc

> Mr. and Mrs. Crandall own 100 percent of the stock in CR Inc., which recently hired the couple’s nephew at a $30,000 annual salary. The nephew, age 20, has been in several scrapes with the law and needs financial help, and the Crandall family agreed that

> Taha is closely held by eight family members. Taha purchased investment land 12 years ago for $100,000. The land was recently appraised at an FMV of $3 million. A buyer has offered to pay cash for the land. Because the shareholders need the cash, they pl

> Last year, Mrs. Kahn and Mrs. Toms each contributed the assets of their respective sole proprietorships to a new corporation. The shareholders believed that by combining their businesses, they could increase profitability. They were encouraged to do so b

> LSN, a calendar year S corporation, has 13 shareholders. Since its incorporation, LSN has retained more than $800,000 income to reinvest in its business. Because LSN is a passthrough entity, the shareholders have paid tax on this undistributed income and

> Eight years ago, Mr. and Mrs. Lauffer created a family partnership with their son, the son’s wife, their daughter, and the daughter’s husband. Each of these six individuals owns an equal interest in the partnership. This year, the son and his wife decide

> REW Inc. is closely held by six members of the REW family. The corporation owns two vans that employees use for various business transportation purposes. However, for at least eight weeks during each page 12-24 year, the shareholders use the vans to take

> Mr. and Mrs. Braun own 100 percent of the stock of BB Inc., which operates a temporary employment business. Late last year, Mr. Braun was short of cash in his personal checking account. Consequently, he paid several personal bills by writing checks on th

> Mr. Jackson owns a 40 percent interest in newly formed JKL Partnership. The partners organized their business as a passthrough entity so that the start-up loss would generate an immediate tax savings. Mr. Jackson, however, had a substantial loss from ano

> WQ Corporation, a closely held family business, has not paid a dividend for the last seven years. Each year, the minutes of the board of directors’ December meeting state that WQ must accumulate after-tax income to pay for a new manufacturing facility. U

> Brillo Company uses the calendar year and the cash method of accounting. On December 29, 2019, Brillo made the following cash payments. To what extent can Brillo deduct the payment in 2019? a. $50,000 for a two-year office lease beginning on February 1,

> Mr. and Mrs. Keck are in the highest marginal tax bracket. Their son, a first-year college student, earns minimal income from his summer job, and his marginal tax rate is 10 percent. Mr. and Mrs. Keck are considering making their son an equal owner in a

> Bandera Corporation has not paid a dividend for six years. This year, the board of directors decides to declare a dividend. It hires a consultant to update the shareholder records so that the dividend can be distributed to the proper people. The consulta

> TK Enterprises, an accrual basis corporation, needs to raise capital. One idea is for TK to sell bonds to the public for $625 each. These bonds would have no stated rate of interest but would be redeemable from TK in five years for a redemption price of

> Wiggins Corporation is a calendar year taxpayer. For the past nine years, its taxable income has been stable, averaging $2 million per year. Through November of this year, its taxable income was $1.81 million. In April, June, and September, Wiggins made

> Talon Corporation has accumulated minimum tax credits from prior years. However, it currently projects that it will operate at a loss for 2018 and 2019, owing no regular tax liability for these years.

> Ferris Corporation is looking to relocate its corporate headquarters to a small, historic town in the northeastern United States. Representatives of the town government have suggested several historic buildings in the town center as options that might me

> Twenty years ago, Chemco Corporation developed, manufactured, and marketed Kepone, a chemical pesticide. As a result of manufacturing practices that violated state environmental standards, harmful levels of Kepone were discharged into the soil and ground

> M&M is a publicly held corporation, and its stock trades on Nasdaq. This year, M&M contributed 15,000 shares of its newly issued common stock to a local charity. At the date of contribution, the stock was selling at $7.12 per share.

> Greentown Foundation is a nonprofit corporation exempt from federal income tax. Its purpose is to solicit volunteers to plant and tend public gardens and greenbelts located in inner cities. The board of directors is considering publishing a gardener’s ne

> Mr. Yang just sold his entire 20 percent interest in DK Partnership to an unrelated purchaser for $7,500. Mr. Yang’s adjusted basis in the interest was zero, and he had a $12,000 carryforward of DK loss.

> Refer to the facts in the preceding problem. Assume that in the year 2020, the Social Security base amount increases to $135,000. Compute BDF’s 2020 employer payroll tax with respect to Mr. Williams assuming that: a. His annual compensation is $60,000.

> Using the 2019 corporate tax rate: a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income? b. What are the tax liability, the marginal tax rate, and the average tax rate for a corpora

> Decker Scientific is considering an investment of $850,000 in a new product line. The company will make the investment only if it will result in a rate of return of 20% per year or higher. If the revenue is expected to be between $290,000 and $325,000 pe

> State what the following abbreviations stand for: NOI, GI, Te, NOPAT, TI, R, OE, EBIT.

> AAA car-buying service surveyed 1000 households to determine the number of operating vehicles owned by residents at the same address. Use the results below to estimate the percentage of households that own (a) one or less vehicles, (b) one or two vehicle

> Estimate the after-tax ROR for a project that has a before-tax ROR of 24%. Assume the company is in the 35% tax bracket and it used MACRS depreciation for an asset that has a $27,000 salvage value.

> An engineer who made an annual return of 8% after taxes on a stock investment was told by his accountant that this is equivalent to a 12% per year before-tax return. What percentage of taxable income is the accountant assuming will be taken by taxes?

> Determine the required before-tax rate of return if an after-tax return of 9% per year is expected and the state and local tax rates total 6%. The effective federal tax rate is 35%.

> Determine (a) the before-tax ROR, and (b) approximate after-tax ROR for a project that has a first cost of $750,000, a salvage value of 25% of the first cost after 3 years, and annual (GI-OE) of $260,000. Assume the company has a Te of 37%.

> Dupont is considering licensing a low liquid discharge (LLD) water treatment system from a small company that developed the process and owns the license. Dupont can purchase a 1-year option for $100,000 that will provide time to pilot test the LLD proces

> Last month, HighPower, which specializes in wind power plant design and engineering, made a capital investment of $400,000 in physical simulation equipment that will be used for at least 5 years, then sold for approximately 25% of the first cost. By law,

> An in-place machine with B = $120,000 was depreciated by MACRS over a 3-year period. The machine was sold for $60,000 at the end of year 2 when the company decided to import the item that required the use of the machine. In year 2, GI = $1.4 million and

> If alternative 1A served 100% of the households instead of 95%, by how much would the monthly household cost decrease?

> In what alternative evaluation is it considered important that an anticipated capital loss (CL) on an in-place asset should be included in an after-tax analysis? Why?

> The after-tax analysis for a $60,000 investment with associated gross income minus expenses (GI – OE) is shown below for the first 2 years only. If the effective tax rate is 40%, the values for depreciation D, taxable income TI, and tax

> A contractor who files as unmarried (single) to the IRS has an effective tax rate of 28%. His gross income is $155,000, other income is $4000, personal expenses are $45,000, and deductions and exemptions are $12,000. His total income tax due is closest t

> An after-market auto parts company sells a machining robot that had been depreciated to zero for $16,000. If the company’s effective tax rate is 36%, the sale will: (a) Increase the company’s taxes by $16,000 (b) Increase the company’s taxes by $5760 (c)

> A small manufacturing company with a gross income of $360,000 has the following operating expenses: M&O = $76,000, insurance = $7000, labor = $110,000, utilities = $29,000, debt service = $37,000, and taxes = $9000. The net operating income (NOI) is clos

> Pennington Oil is in the 50% effective tax bracket. It had gross income of $470 million in each of the last 2 years. In the first year, deductions were $160 million. In the second year, deductions were lower at $120 million. The difference in income taxe

> A capital gain is calculated by the equation: (a) Capital gain = book value – selling price (b) Capital gain = book value – first cost (c) Capital gain = market value – selling price (d) Capital gain = selling price – first cost

> Depreciation recapture occurs when a depreciable asset is sold for: (a) More than the current book value (b) More than the current market value (c) More than the estimated salvage value (d) More than the first cost

> All of the following are characteristics of a value added tax system, except: (a) Value-added taxes are taxes on consumption (b) The end user pays value-added taxes (c) Value-added taxes are charged at each stage of product development (d) Value-added ta

> Are the PW values for Plans A and B sensitive to changes in the MARR?

> A graduated income tax system means: (a) Only taxable incomes above a certain level pay any taxes (b) A higher flat rate goes with all of the taxable income (c) Higher tax rates go with higher taxable incomes (d) Rates are indexed each year to keep up wi

> If all values carry a + sign, cash flow before taxes (CFBT) is represented by the equation: (a) Gross income – operating expenses – depreciation – initial investment + salvage value (b) Gross income – operating expenses – depreciation + salvage value (c)

> If the federal tax rate is 36% and the state tax rate is 7%, the effective tax rate is closest to: (a) 40.5% (b) 37.3% (c) 35.4% (d) 31.8%

> If the after-tax ROR is 11.4% and the corporate Te is 39%, the approximate before-tax rate of return is closest to: (a) 6.8% (b) 15.4% (c) 18.7% (d) 19.7%

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Ajinkya Electronic Systems, a company in India that manufactures many different electronic products, has to purchase goods and services from a variety of suppliers (wire, diodes, LED displays, plastic components, etc.). The table below shows several supp

> Is the breakeven point for the first cost of Plan A sensitive to the changes in MARR as business goes from vigorous to receding?

> In Denmark, VAT is applied at a rate of 25%, with few exceptions. If vendor A sells raw materials to vendor B for $60,000 plus VAT, and vendor B sells a product to vendor C for $130,000 plus VAT, and vendor C sells an improved product to an enduser for $

> What is the primary difference between a sales tax and a value-added tax?

> For the decision tree branch shown, determine the expected values of the two outcomes if decision D3 is already selected and the maximum outcome value is sought. (This decision branch is part of a larger tree.)

> Calculate the expected flow rate (barrels per day) for each oil well using the estimated probabilities.

> A-Z Technologies, a manufacturer of amplified pressure transducers, is trying to decide between a dual-speed and a variable-speed machine. The engineers are not sure about the salvage value of the variable speed machine, so they have asked several differ

> Nationwide income from monthly sales data (rounded to the nearest $100,000) of Stay Flat vacuum hold-down tables for last year was collected. Estimate the expected value of monthly income if economic conditions remain the same. Income, $/Month

> An asset with a first cost of $300,000 is depreciated by the MACRS method using a 5-year recovery period. Determine the economic value added in year 2, if the net operating profit after taxes is $70,000 and the company uses an after-tax MARR of 15% per y

> (a) What does the term economic value added (EVA) mean relative to the bottom line of a corporation? (b) Why might an investor in a public corporation prefer to use the EVA estimates over the CFAT estimates for a project?

> The variable Y is defined by the relation 3n for n = 1, 2, 3, 4 with probabilities of 0.4, 0.3, 0.233, and 0.067, respectively. Determine the expected value of Y.

> Thermtech Science has performed an economic analysis of proposed service in a new region of the country. The three-estimate approach to sensitivity analysis has been applied. The optimistic and pessimistic values each have an estimated 15% chance of occu

> Are the PW values sensitive to varying life estimates?

> The cost of flood damage from significant storms varies as a function of the severity of the storm. Estimate the expected flood damage due to the next significant storm.

> In the recent past, the production output has been between 10,000 and 20,000 units per week 75% of the time; however, it may fall below 10,000 or go above 20,000 more frequently in the future. The production manager wants to use E(output) to make a decis

> For each situation below, determine (1) if the variable(s) is(are) discrete or continuous, and (2) if the information involves certainty, risk, and/or uncertainty. (a) A friend in real estate tells you the price per square foot for new houses will go up

> Identify the following variables as either discrete or continuous: (a) The number of times heads comes up in 100 tosses of a coin (b) The number of accidents occurring in a specified section of a freeway (c) The weight of boxes shipped from an Amazon war

> The defender in a multiple-effect solar cell manufacturing plant has a market value of $130,000 and expected annual operating costs of $70,000 with no salvage value after its remaining life of 3 years. The depreciation charges for the next 3 years will b

> The last annual report of Harrison Engineering’s 3-D Imaging Division showed GI = $4.9 million, OE = $2.1 million, and D = $1.4 million. If the average federal tax rate is 31% and state/local tax rates total 9.8%, estimate (a) federal income taxes, and (

> Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters. The resulting PW values over the LCM are determined as shown. If none of the strategies is more like

> Four mutually exclusive alternatives are evaluated using three estimates or strategies (pessimistic, most likely, and optimistic) for several parameters. The resulting PW values over the LCM are determined as shown. The best alternative to select under t

> A real options analysis is most valuable when: (a) The risk is low and stakes are high (b) The stakes are low and risk is high (c) The stakes are high and risk is high (d) The stakes are low and risk is low

> A decision tree includes all of the following except: (a) Probability estimates for each outcome (b) Measure of worth as the selection criterion (c) Expected results from a decision at each stage (d) The MARR

> Prepare the simulation using a spreadsheet; determine which of the vendors offers the best machine from an economic perspective, and take into account the estimates made by Dr. Knox. Use a sample size of at least 50, and base your conclusions on the AW m

> A recent sensitivity analysis of a public works project indicates that the expected present worth is $83,000. If there is a 20% chance that the PW will be the pessimistic one of $45,000 and 50% chance that it will be the most likely one of $72,000, the o

> Revenue into the general fund of the state of Texas for any biennium is highly dependent on the price of oil. At a price average of $50 per barrel, general revenue will be $95 billion. At $68 and $75 per barrel, the revenue will be $118 billion and $125

> When conducting a sensitivity analysis using three estimates for each parameter, all of the following are estimates that should be made, except: (a) Pessimistic (b) Improbable (c) Optimistic (d) Most likely

> When the sensitivity of several parameters is considered for one alternative using a single measure of worth and the measure of worth is plotted against percentage change for each parameter, the resulting graph is called a: (a) Spider graph (b) Distribut

> In conducting a sensitivity analysis of a proposed project, the present worth values of $–10,000, $40,000, and $50,000 were believed to have chances of 25%, 40%, and 35%, respectively. The expected PW is closest to: (a) $19,000 (b) $26,000 (c) $28,500 (d

> When the measure of worth is plotted versus percentage change for several parameters, the parameter that is the most sensitive in the economic analysis is the one: (a) That has the steepest curve (b) That has the flattest curve (c) With the largest prese

> All of the following are steps in the procedure for conducting a sensitivity analysis, except: (a) Determine which parameters might vary from the most likely estimated value (b) Change the parameters in the range of −100% to +100% (c) Select a measure of

> In evaluating the sensitivity of an alternative to its first cost, its AW was calculated for changes in the estimated first cost by –10%, +5%, and +15%. The resulting AW values were $+21,000, $–2410, and $–34,000, respectively. On the basis of these valu

> Freeman Engineering paid $28,500 for specialized equipment for use with their new GPS/GIS system. The equipment was depreciated over a 3-year recovery period using MACRS depreciation. The company sold the equipment after 2 years for $5000 when it purchas