Loretta Plans to Start a Small Business, Which Will Operate

question 5

Multiple Choice

Loretta plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate a loss of $100,000. Subsequently, she expects the corporation to be profitable, and projects profit of $150,000 in year 1, and $250,000 in year 2. Using Appendix A and a 10% discount rate, calculate the present value of expected tax savings and costs on the business earnings for the first 3 years of operations if the business does not make an S corporation election.

• A) $52,910 total tax cost
• B) $88,250 total tax cost
• C) $94,350 total tax cost
• D) $118,800 total tax cost

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Definitions:

Lifestyle Changes

Modifications made to one's way of living, aiming to improve health, happiness, and well-being.

Overwhelming Feeling

An intense emotional state that exceeds the individual's capacity to manage or process effectively.

Permanent

Lasting or intended to last or remain unchanged indefinitely.

Temporary

Something not lasting or permanent, intended to last only for a limited period of time.