Based Only on the Information Provided for Each Scenario, Determine

question 66

Essay

Based only on the information provided for each scenario, determine whether Kristi or Cindy will benefit more from using the timing strategy and why there will be a benefit to that person.
Use Exhibit 3.1.(Round discount factor(s) to 3 decimal places.)
a. Kristi has a 40% tax rate and can defer $20,000 of income. Cindy has a 30% tax rate and can defer $30,000 of income.
b. Kristy has a 30% tax rate, a 10% after-tax rate of return, and can defer $25,000 of income for three years. Cindy has a 40% tax rate, an 8% after-tax rate of return, and can defer $20,000 of income for four years.

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Definitions:

Investing Activities

Part of cash flow analysis that involves the purchase or sale of long-term assets and investment securities, reflecting a company's investment growth or reduction.

Net Operating Income

A measure of a company's profitability, calculated by subtracting operating expenses from gross profit.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity level.

Net Operating Income

The profit derived from a company's everyday operations, calculated by subtracting operating expenses from gross profit.