Ms Leik Has $50,000 in an Investment Paying 10% Annual

question 9

Multiple Choice

Ms. Leik has $50,000 in an investment paying 10% annual interest. Each year, she incurs a $600 cash expense relating to the investment. If Ms. Leik's marginal tax rate is 20%, which of the following statements is true?

• A) Ms. Leik's annual after-tax cash flow from this investment is $3,520.
• B) If the interest is taxable but the expense is not deductible, Ms. Leik's annual after-tax cash flow from the investment is $3,400.
• C) If the interest is tax-exempt and the expense is not deductible, Ms. Leik's annual after-tax cash flow is $5,000.
• D) None of these choices are true.

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