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Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late...

Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December, she received a $45,000 bill from her accountant for consulting services related to her small business. Reese can pay the $45,000 bill anytime before January 30 of next year without penalty. Assume Reese's marginal tax rate is 32 percent this year and 35 percent next year, and that she can earn an after-tax rate of return of 10 percent on her investments.

a. What is the after-tax cost if she pays the $45,000 bill in December?

    

b. What is the after-tax cost if she pays the $45,000 bill in January? Use Exhibit 3.1. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

    


c. Should Reese pay the $45,000 bill in December or January

EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return
4% 5% 6% 7% 8% 9% 10% 11% 12%
Year 1 .962 .952 .943 .935 .926 .917 .909 .901 .893
Year 2 .925 .907 .890 .873 .857 .842 .826 .812 .797
Year 3 .889 .864 .840 .816 .794 .772 .751 .731 .712
Year 4 .855 .823 .792 .763 .735 .708 .683 .659 .636
Year 5 .822 .784 .747 .713 .681 .650 .621 .593 .567
Year 6 .790 .746 .705 .666 .630 .596 .564 .535 .507
Year 7 .760 .711 .665 .623 .583 .547 .513 .482 .452
Year 8 .731 .677 .627 .582 .540 .502 .467 .434 .404
Year 9 .703 .645 .592 .544 .500 .460 .424 .391 .361
Year 10 .676 .614 .558 .508 .463 .422 .386 .352 .322
Year 11 .650 .585 .527 .475 .429 .388 .350 .317 .287
Year 12 .625 .557 .497 .444 .397 .356 .319 .286 .257
Year 13 .601 .530 .469 .415 .368 .326 .290 .258 .229
Year 14 .577 .505 .442 .388 .340 .299 .263 .232 .205
Year 15 .555 .481 .417 .362 .315 .275 .239 .209 .183
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