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Question 5 Kimo Corporation, a cash basis calendar-year taxpayer, is in the 30 percent marginal tax bracket this year.
Kimo Corporation, a cash basis calendar-year taxpayer, is in the 30 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of this year or in January of next year.
A. If it expects its marginal tax rate to be 30 percent next year, should it pay the expense this year or next? Use an 8 percent discount factor to explain your answer. Show your calculations and fully explain your answer.
B. How would your answer change if Kimo's marginal tax rate next year is only 25%? Show your calculations and fully explain your answer.
C. How would your answer change if Kimo's marginal tax rate next year is 34%? Show your calculations and fully explain your answer.
