Homework Answers
a. Calculation of after tax cost if pays on December
Tax savings in current year = $20,000*37%=$7400
After tax cost = Cost of bill - Tax savings = 20,000-7400=$12,600
b. Calculation of after tax cost if pays on January
Tax savings in next year = $20,000*37%=$7400
Present value of $1 at 12% for one year = 0.893
Present value of tax savings = $7400* .893=$6607
After tax cost = $20,000-6607=$13393
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