Ms Kent Has $200,000 in an Investment Paying 8% Annual

question 55

Multiple Choice

Ms. Kent has $200,000 in an investment paying 8% annual interest. Her marginal tax rate is 40%. Which of the following statements is false?

• A) Ms. Kent's annual before-tax cash flow from this investment is $16,000.
• B) If the interest is tax-exempt, Ms. Kent's annual after-tax cash flow is $16,000.
• C) If the interest is taxable, Ms. Kent's annual after-tax cash flow is $6,400.
• D) None of these choices are false.

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Definitions:

Interest Payment

The amount paid by a borrower to a lender for the use of borrowed money, typically expressed as an annual percentage of the loan principal.

Journal Entry

A recording of a financial transaction in an accounting journal, indicating the accounts and amounts to be debited and credited.

Interest Expense

The cost incurred by an entity for borrowed funds; interest payments made on debt.

Contract Rate

The agreed-upon rate specified in a contract for the provision of goods or services, often discussed in the context of interest rates or wages.