Explain Why $1 Today Is Not Equal to $1 in the Future

question 116

Essay

Explain why $1 today is not equal to $1 in the future. Why is understanding this concept particularly important for tax planning? What tax strategy exploits this concept?

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Definitions:

Stock Split

A corporate action that increases the number of shares in a company by issuing more shares to current shareholders proportional to their ownership.

Market Value

The current value of an asset or company based on the price that it can be sold in the open market.

Paid In Surplus

The amount of money paid by investors for shares above their nominal value, representing additional contributed capital.

Stock Split

A corporate action in which a company divides its existing shares into multiple shares to boost the stock's liquidity, though the market capitalization remains the same.