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:

Concussion

A type of traumatic brain injury caused by a blow to the head, which affects brain function.

Syncope

A temporary loss of consciousness usually related to insufficient blood flow to the brain, commonly known as fainting.

Neurosecretions

Biochemical substances produced and released by neurons that influence the activity of other cells or a target organ.

Hypothalamus

A region of the brain below the thalamus; it directs several important bodily functions like temperature regulation and hunger.