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Ms. Patty holds a $120,000 investment that pays 7% annual interest. Her marginal tax rate is...

Ms. Patty holds a $120,000 investment that pays 7% annual interest. Her marginal tax rate is 30%. Which, if any, of the following three statements is false?

If the interest is taxable, Ms. Lenz's annual after-tax cash flow is $5,580

If the interest is tax-exempt, Ms. Lenz's annual after-tax cash flow is $8,400

None of the above is false

Ms. Lenz's annual before-tax cash flow from this investment is $8,400

2.) Churchill Inc. must choose between two alternate transactions. Transaction 1 would generate $140,000 cash, none of which would be taxable, while transaction 2 would generate $175,000 cash, all of which would be taxable. Determine the marginal tax rate at which the after-tax cash flows from the two transactions are equal.

15%

20%

25%

30%

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Answer #1

tax Rate @ 30% Into est is taxable tax hate artn-tax Co.hhows = 4 120ơoo x 71. x (-0.3.) 5880 Intust is Exumpt 2000 3400 → Hnnu he tax $8400 Nona of the Statu ent is Ealse. LOR RECィ 0Mons- optan(b) → 20% 750D0 o.20

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