Solutions to Chapter 4 Problems

Evaluate the tax savings and after-tax cash-flow effect of each of these investment choices. State which option you recommend for William and explain why. Solution: By investing $12,000 in a 401(k) plan, William avoids current income taxes of $3,360 ($12,000 x 28% marginal tax rate) His after-tax cost for this investment is only $8,640 ($12,000 - $3,360) while he has $12,000 invested in the ... ................
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