According to the Permanent-Income Theory, Which of the Following Would

question 16

Multiple Choice

According to the permanent-income theory, which of the following would have the greatest impact on the current consumption of a 45 year-old tenured college professor?

• A)a promotion to full professor combined with a $5,000 raise
• B)a $5,100 advance payment for a book that will take two years to write
• C)winning $5,200 in the Reader's Digest Sweepstakes
• D)a loss of a stamp collection worth $5,400
• E)an inheritance of $5,500 from a distant uncle

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Definitions:

CCA Tax Shield

A deduction that Canadian businesses can claim for the depreciation of tangible property, reducing taxable income.

After-Tax Annual Lease Payment

The amount of lease payments due each year after accounting for the tax effects.

After-Tax Discount Rate

The discount rate after adjusting for taxes, used to evaluate investments and their future cash flows after tax implications.

After-Tax Lease Payment

After-tax lease payment refers to the lease expense remaining after deducting taxation benefits associated with the lease, illustrating the net cost of leasing to the lessee.