Loretta Plans to Start a Small Business,operated Through a Corporation

question 5

Multiple Choice

Loretta plans to start a small business,operated through 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.Loretta's personal marginal tax rate on ordinary income is 37%.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 makes an S corporation election.Assume the excess business loss limitation does not apply.

• A)$52,910 total tax cost
• B)$94,350 total tax cost
• C)$99,772 total tax cost
• D)$0

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Definitions:

Furniture Firm

A company that specializes in the design, manufacture, and/or sale of furniture products.

Collective Agreement

An employment contract between an employer and a union that sets out the terms of employment of a group of the employer’s employees represented by the union

Employment Standards Act

Legislation that outlines the minimum terms and conditions of employment, such as wage, working hours, holidays, and leaves, in a specific jurisdiction.

Minimum Wage

The lowest legal wage that employers can pay their employees, ensuring a basic standard of living.