In December 2014, Arnold Is Considering One Last Financial Decision

question 4

Essay

In December 2014, Arnold is considering one last financial decision for 2014. He has $5,000 that he would like to spend before the end of the year. His options include donating the money to a qualified charity and receiving an itemized deduction) or using the money as a down payment on the purchase of $30,000 of equipment for his business. If he purchases the equipment, he will receive an 8% tax credit for the entire purchase price. He does not need the equipment until early next year, so the purchase at this time is not critical. Assume that Arnold is in the 33% marginal tax rate bracket in 2014 and itemizes his deductions. Which option will provide him with the greatest tax benefit? Explain and show any calculations that support your answer.

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Definitions:

Null Hypothesis

A default hypothesis that there is no significant difference or relationship between specified populations or variables.

Operating Characteristic

A function or curve that describes the discerning capacity of a statistical test, defining the probabilities of accepting a hypothesis over a range of values.

Sample Size

The number of individuals or observations used in a study, affecting its power and the precision of the results.

Type II Error

A statistical error that occurs when a false null hypothesis is not rejected, missing an actual effect or difference.