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Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she receiv
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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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