Ahmad Is Considering Making a $10,000 Investment in a Venture

question 53

Multiple Choice

Ahmad is considering making a $10,000 investment in a venture whose promoter promises will generate immediate tax benefits for him.Ahmad, who normally itemizes his deductions, is in the 32% marginal tax bracket.If the investment is of a type where the taxpayer may claim either a tax credit of 25% of the amount of the expenditure or an itemized deduction for the amount of the investment, what treatment is likely most beneficial to Ahmad, and by how much will Ahmad's tax liability decline because of the investment?

• A)$-0-, take neither the itemized deduction nor the tax credit.
• B)$2,500, take the tax credit.
• C)$3,200, take the itemized deduction.
• D)Both options produce the same benefit.

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Definitions:

Transfer Price

The rate at which products and services are exchanged among departments within the same organization.

Opportunity Cost

The value of the best alternative that is foregone when a particular decision is made.

Transfer Price

The price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments.

Valve Division

A specialized department within a company that focuses on the production and sales of valve-related products.