See files Question 1-4
Name: [type here] Instructions Respond to the questions/problems below. Make sure you read each question carefully and maybe more than once. You can and should edit this document, adding space for your answers. Submit your work to Blackboard. Information You will need to: · Consult MACRS tables for parts 1 & 2. See images in BB “Common Resources.” · Compute “expected values” for part 3. Look up this term if you are unfamiliar with it. · Compute individual income tax liabilities for a single taxpayer using 2020 tax rates in part 4. Assume 2021 tax rates are the same as in 2020. If you are unclear about any of these concepts, please attend the weekly office hours or email me. In addition, I recommend that you use Excel for part 4. You can use the spreadsheet you create as the starting point for the individual tax planning case in Module 6. A particularly effective way to do this easily to is enter the parameters of the problem in question 4 on a separate worksheet, and then link the tax calculations to these parameters. This will allow you to easily change them later on. My final suggestion is to do the cash flow and the tax calculations all on one worksheet with multiple columns (e.g., This year, no bonus; This year, with bonus; Next year, no bonus; Next year, with bonus.) Required 1. Compute the present value of the after-tax cost (“PVATC”) of purchasing equipment that your corporate client can depreciate using MACRS if the before-tax cost was $3,500,000 and your after-tax discount rate is 6%. Assume that all tax savings occur at the end of the deduction year. Hint: carefully “map out” when all the cash flows occur and discount as needed. 2. Same as #1, except that you can take 100% bonus depreciation on the equipment. How much greater is the PVATC in #1? 3. Suppose that you propose a generic tax planning idea for your corporate client that you believe will generate the following annual tax deductions: a. Year 1: $30,000Year 2: $5,000Year 3: $15,000 However, there is only a 50% chance that the IRS will detect and accept the results of the tax plan. If the IRS does not accept the plan, the tax savings each year will be zero. Assuming that your client is risk-neutral (i.e., that it is not “afraid” of risk but also does not seek out risk), compute the maximum expected fee you could charge your client to design and implement this tax plan. You can ignore time-value of money considerations for this relatively short time horizon. 4. Misty will graduate from OU with a degree in accounting in May. She plans to take the Becker FASTPASS CPA review course during the summer and take the CPA exam in the latter part of the summer and early fall. Her hope is to pass each part of the CPA exam the first time she takes them and complete the exam before the end of this year. She will start work on September 1 at “Daloit.” If she passes the CPA exam before the end of the current year, Daloit will award her a $6,000 cash bonus. If she passes the CPA exam next year, Daloit will pay her a $5,000 cash bonus. After next year, the bonus is zero. Because she took ACCT3400 at OU, she knows that she needs to consider the after-tax bonus that she gets to keep rather than focus on the before tax bonus paid by her employer. However, because it is now been a year and a half since she took the class, she needs your help in making these computations. Specifically, she wants to know how much more after-tax cash flow she will keep if she earns a $6,000 bonus this year when working only a partial year, versus only a $5,000 bonus next year when she works a full year (the bonus is zero after that). Her starting pay is $57,000 per year. She will file as a single taxpayer taking the standard deduction both this year and next year. Her only other income or deductions will be $400 each year in interest income. You can assume that Misty will receive a 10% raise effective at the beginning of next year. In addition, use the 2020 single tax rate schedule and standard deduction for both years. Compute the net, after-tax cost of not passing the CPA exam in her first sitting. The most straightforward way to approach this is to compute the ATCF from each “option” and then compare the final results.