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

question 9

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 39.6%.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.

• A)$118,800 total tax cost
• B)$96,169 total tax cost
• C)$99,772 total tax cost
• D)$0

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Definitions:

Particular Purpose

A specific objective or requirement for which goods or services are intended or needed, as expressed in a contract.

Lessee

A person or entity who leases or rents property from another, known as the lessor.

Merchant

A merchant is an individual or company involved in the wholesale or retail trade of goods or services.

Sale

The transaction between a buyer and a seller in which the ownership of goods is transferred in exchange for payment.