Terri and Mike Are Seeking a Divorce

question 10

Essay

Terri and Mike are seeking a divorce.Terri and Mike own an art collection worth $357,000 that would belong to Terri.Mike offered to make annual payments of cash to Terri each year for five years if Terry allows Mike to take possession of the art collection.Mike insists however,that the annual payments must cease in the event of Terri's death.What amount of annual payment must Terri demand to make her indifferent after taxes between taking possession of the ($357,000)art versus collecting the cash payments? Assume that Terri has a marginal tax rate of 15 percent and Mike's tax rate is 35 percent and ignore the time value of money.

---

Definitions:

Accounts Receivables

Dues owed by customers to a firm for the provision of goods or services that have been delivered but remain unpaid.

Accounts Receivable

Represents money owed by customers to a company in exchange for goods or services that have been delivered but not yet paid for.

Accounts Payable

Money owed by a business to its suppliers shown as a liability on the company's balance sheet.

Prepaid Expense

Payments made in advance for goods or services to be received in the future, recorded as an asset on the balance sheet until the expense is incurred.