Research Memorandum I Tom Can Choose When He Is To Receive 100 000 Of Fully Taxa

   Research Memorandum
  I.         Tom can choose when he is to receive $100,000 of fully taxable bonus. If he receives the bonus at the end of 2016, his bonus will be $100,000. If he postpones receipt of the bonus until the end of 2017, the amount will be $110,000. If Tom receives the bonus at the end of 2016, he can invest the proceeds with a pre-tax return of 10% over the next year.  
a.     If the marginal tax rate of Tom is 31% in 2016 and 2017, when should he elect to receive the bonus?
b.    At what pre-tax rate of return will Tom be indifferent to receiving the bonus in the alternative years?
c.     If the marginal tax rate of Tom increases to 35% in 2017, when should he elect to receive the bonus?
d.    What would the tax rate need to be in 2017 to make Tom indifferent to the two options?
 
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