At the Beginning of Year 1,Sandeep Invests $10,000 in a Money

question 27

Multiple Choice

At the beginning of year 1,Sandeep invests $10,000 in a money market fund that pays a 3% annual return before taxes.Sandeep's marginal tax rate is 25%,and he allows the after-tax earnings to remain in the money market fund.That is,he withdraws only enough cash to pay the taxes on the earnings.What is his after-tax accumulation at the end of year 2?

• A)$10,455
• B)$10,609
• C)$10,690
• D)None of the above

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Definitions:

Net Method

An accounting method that records the net of discounts or expenses directly on invoices at the time of purchase or sale.

Selling Price

The price at which a product or service is sold to customers, reflecting the cost plus any added profit margin.

Acquisition Differential

This refers to the difference between the purchase price of a company and the fair value of its identifiable net assets.

Straight Line Amortization

A method of gradually writing off the initial cost of an asset over its useful life in equal installments.