Based Only on the Information Provided for Each Scenario,determine Whether

question 113

Essay

Based only on the information provided for each scenario,determine whether Kristi or Cindy will benefit more from using the timing strategy and why there will be a benefit to that person.Use Exhibit 3.1.
(Round discount factor(s)to 3 decimal places.)
 
a.Kristi has a 40% tax rate and can defer $20,000 of income.Cindy has a 30% tax rate and can defer $30,000 of income.
b.Kristy has a 30% tax rate,a 10% after-tax rate of return,and can defer $25,000 of income for three years.Cindy has a 40% tax rate,an 8% after-tax rate of return,and can defer $20,000 of income for four years.

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Definitions:

Production

The creation or manufacture of goods and services with the combination of labor, equipment, technologies, and raw materials.

Diminishing Returns

A principle stating that if one factor of production is increased while others are held constant, the output per unit of the variable factor will eventually decrease.

ATC

An abbreviation for Average Total Cost, a financial metric calculated by dividing the total cost by the quantity of output produced.

MC

Often referred to as Marginal Cost, it is the increase in total cost that arises from an extra unit of production.