Question

You are a tax consultant and recently you signed an agreement with Pioneer Company to review some proposals and help the company plan for its coming tax years.
Answer the following independent proposals by providing calculations and explanations for your opinion/recommendations.

2. The company has the opportunity to engage in a transaction that will generate a total cash of $180,000 that will be considered a taxable income in the year received. Pioneer will receive $100,000 in year 0 and $80,000 in year 1. The company has the option to restructure the above transaction and receive $107,500 in year 0 and $80,000 in year 1. However, Pioneer should recognize the total amount received as a taxable income in year 0. The company’s investment manager rejected the restructure of the above proposal. Assume the company uses 8% discount rate and has a marginal tax rate of 35%. Do you agree with the investment manager decision? Assuming you disagree, provide the appropriate calculations and explain your recommendation.

Answer 1