Wilson Company has $100,000 in an investment paying 6% per annum. Each year Wilson incurs $1,200 of expenses related to this investment. Compute Wilson's annual net cash flow from this investment assuming the following.A. Wilson's marginal tax rate is 10% and the annual expense is not deductible. B. Wilson's marginal tax rate is 35% and the annual expense is deductible. C. Wilson's marginal tax rate is 25% and one-half of the annual expense is deductible.
What will be an ideal response?
A. After-tax cash flow is $4,200 = $6,000 ? $1,200 ? (10% × $6,000).
B. After-tax cash flow is $3,120 = $6,000 ? $1,200 ? (35% × ($6,000 ? $1,200)).
C. After-tax cash flow is $3,450 = $6,000 ? $1,200 ? (25% × ($6,000 ? (50% × $1,200))).
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