MsLeik Has $50,000 in an Investment Paying 10% Annual Interest

question 27

Multiple Choice

Ms.Leik has $50,000 in an investment paying 10% annual interest.Each year,she incurs a $600 cash expense relating to the investment.If Ms.Leik's marginal tax rate is 20%,which of the following statements is true?

• A)Ms.Leik's annual after-tax cash flow from this investment is $3,520.
• B)If the interest is taxable but the expense is not deductible,Ms.Leik's annual after-tax cash flow from the investment is $3,400.
• C)If the interest is tax-exempt and the expense is not deductible,Ms.Leik's annual after-tax cash flow is $5,000.
• D)None of the above is true.

---

Definitions:

Court Liability

The potential obligation or requirement for a party to respond to or remedy a situation as determined by a court decision.

Alleged Partner

is a term used to describe someone who is claimed or said to be a partner in a business or venture, often without formal proof.

Ownership of Property

The legal right or title to possess, use, and control an asset or property.

Percentage of Profits

A portion or share of the profits generated by a business or investment, expressed as a percentage of the total profits.