Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate an ordinary loss of $950,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of $1,425,000 in year 1, and $2,375,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37%. Assuming a corporate tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3 years of operations if the business does not make an S corporation election. Assume the excess business loss limitation does not apply. Round your discount rate calculations to three decimal places. O $853,623 O $896,325 O$1.128,600 $502,640
Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate an ordinary loss of $950,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of $1,425,000 in year 1, and $2,375,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37%. Assuming a corporate tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3 years of operations if the business does not make an S corporation election. Assume the excess business loss limitation does not apply. Round your discount rate calculations to three decimal places. O $853,623 O $896,325 O$1.128,600 $502,640
Chapter13: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 8DQ
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Transcribed Image Text:Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to
generate an ordinary loss of $950,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of
$1,425,000 in year 1, and $2,375,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37%. Assuming a corporate
tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3
years of operations if the business does not make an S corporation election. Assume the excess business loss limitation does not
apply. Round your discount rate calculations to three decimal places.
O $853,623
O $896,325
O$1.128,600
$502,640
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