Mingming and Xavier,unrelated Single Taxpayers,have Each Incurred a $1,000 Expenditure

question 47

Multiple Choice

Mingming and Xavier,unrelated single taxpayers,have each incurred a $1,000 expenditure.Before considering this expenditure,Mingming has taxable income of $500,000 and Xavier has taxable income of $32,000.Assume the expenditure qualifies as either a tax deduction or a 25% credit.Which of the following statements is correct?

• A)Mingming will prefer the credit,but Xavier will prefer the deduction.
• B)Mingming will prefer the deduction,but Xavier will prefer the credit.
• C)Both taxpayers will prefer the credit.
• D)Both taxpayers will prefer the deduction.

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Definitions:

Net Present Value Analysis

A method used in capital budgeting to evaluate the profitability of an investment, calculating the present value of expected cash flows less the initial investment.

Capital Investment

Capital investment denotes funds invested in a company or enterprise for the purpose of furthering its business objectives, such as purchasing machinery or buildings.

Present Value

Today's value of future financial sums or cash flow streams, considering a specific rate of return.

Compound Interest

Interest computed on both the original amount of money and on the interest that it has already earned in past periods.