Harry and Sally graduate from UAH and each go their separate ways. Hanrry starts
ID: 1100835 • Letter: H
Question
Harry and Sally graduate from UAH and each go their separate ways. Hanrry starts a landscaping business and Sally starts a charter high school. Harry's business is organized as an S-coiporation and Sally's school is not for profit. They each bring in $250,000 in revenue even- war and pay $150,000 in expenses. Hairy receives no salary, but takes his profit out of the business every year as his pay. The school has a more intricate approach: The endowment (an investment account for the school) is managed as follows: each war. the revenue is added to the endowment and the expenses are removed from the endowment. Then half of the endowment is transferred to a salary account. 7% of the salary account goes to the government for payroll taxes. The remainder of the account becomes Sally's annual salary The money remaining in the endowment earns 8% interest per war. Sally pays 34% tax on her income. Harry pays 40%, because he must pay his own payroll tax. What is the net present value of Harry's and Sally's respective earnings over their 35 war careers? They each have a discount rate of 15%. Harry is paying 40% because he is sole proprietor of his business. What would his net present value be if he organized instead as a S-Corporation and paid only 29% of his mcome in taxes?Explanation / Answer
NPV of Harry's earning = $396,996
NPV of Sally's earning = $358,911
If Harry paid only 29% as taxes than his NPV is $469,779
Year Company's Profit Harry's Pay After Taxes PV of Pay Starting Endowment Increase in Endowment Total Salary Account After Taxes Sally's Salary After Taxes PV of pay 1 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 52,173.91 $ - $ 100,000.00 $ 100,000.00 $ 50,000.00 $ 46,500.00 $ 46,500.00 $ 30,690.00 $ 26,686.96 2 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 45,368.62 $ 50,000.00 $ 100,000.00 $ 150,000.00 $ 75,000.00 $ 69,750.00 $ 69,750.00 $ 46,035.00 $ 34,809.07 3 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 39,450.97 $ 75,000.00 $ 100,000.00 $ 175,000.00 $ 87,500.00 $ 81,375.00 $ 81,375.00 $ 53,707.50 $ 35,313.55 4 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 34,305.19 $ 87,500.00 $ 100,000.00 $ 187,500.00 $ 93,750.00 $ 87,187.50 $ 87,187.50 $ 57,543.75 $ 32,900.83 5 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 29,830.60 $ 93,750.00 $ 100,000.00 $ 193,750.00 $ 96,875.00 $ 90,093.75 $ 90,093.75 $ 59,461.88 $ 29,563.06 6 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 25,939.66 $ 96,875.00 $ 100,000.00 $ 196,875.00 $ 98,437.50 $ 91,546.88 $ 91,546.88 $ 60,420.94 $ 26,121.64 7 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 22,556.22 $ 98,437.50 $ 100,000.00 $ 198,437.50 $ 99,218.75 $ 92,273.44 $ 92,273.44 $ 60,900.47 $ 22,894.74 8 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 19,614.11 $ 99,218.75 $ 100,000.00 $ 199,218.75 $ 99,609.38 $ 92,636.72 $ 92,636.72 $ 61,140.23 $ 19,986.85 9 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 17,055.74 $ 99,609.38 $ 100,000.00 $ 199,609.38 $ 99,804.69 $ 92,818.36 $ 92,818.36 $ 61,260.12 $ 17,413.95 10 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 14,831.08 $ 99,804.69 $ 100,000.00 $ 199,804.69 $ 99,902.34 $ 92,909.18 $ 92,909.18 $ 61,320.06 $ 15,157.38 11 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 12,896.59 $ 99,902.34 $ 100,000.00 $ 199,902.34 $ 99,951.17 $ 92,954.59 $ 92,954.59 $ 61,350.03 $ 13,186.77 12 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 11,214.43 $ 99,951.17 $ 100,000.00 $ 199,951.17 $ 99,975.59 $ 92,977.29 $ 92,977.29 $ 61,365.01 $ 11,469.56 13 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 9,751.68 $ 99,975.59 $ 100,000.00 $ 199,975.59 $ 99,987.79 $ 92,988.65 $ 92,988.65 $ 61,372.51 $ 9,974.75 14 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 8,479.72 $ 99,987.79 $ 100,000.00 $ 199,987.79 $ 99,993.90 $ 92,994.32 $ 92,994.32 $ 61,376.25 $ 8,674.22 15 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 7,373.67 $ 99,993.90 $ 100,000.00 $ 199,993.90 $ 99,996.95 $ 92,997.16 $ 92,997.16 $ 61,378.13 $ 7,543.03 16 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 6,411.89 $ 99,996.95 $ 100,000.00 $ 199,996.95 $ 99,998.47 $ 92,998.58 $ 92,998.58 $ 61,379.06 $ 6,559.26 17 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 5,575.55 $ 99,998.47 $ 100,000.00 $ 199,998.47 $ 99,999.24 $ 92,999.29 $ 92,999.29 $ 61,379.53 $ 5,703.75 18 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 4,848.31 $ 99,999.24 $ 100,000.00 $ 199,999.24 $ 99,999.62 $ 92,999.65 $ 92,999.65 $ 61,379.77 $ 4,959.80 19 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 4,215.92 $ 99,999.62 $ 100,000.00 $ 199,999.62 $ 99,999.81 $ 92,999.82 $ 92,999.82 $ 61,379.88 $ 4,312.88 20 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 3,666.02 $ 99,999.81 $ 100,000.00 $ 199,999.81 $ 99,999.90 $ 92,999.91 $ 92,999.91 $ 61,379.94 $ 3,750.33 21 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 3,187.84 $ 99,999.90 $ 100,000.00 $ 199,999.90 $ 99,999.95 $ 92,999.96 $ 92,999.96 $ 61,379.97 $ 3,261.16 22 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 2,772.04 $ 99,999.95 $ 100,000.00 $ 199,999.95 $ 99,999.98 $ 92,999.98 $ 92,999.98 $ 61,379.99 $ 2,835.79 23 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 2,410.47 $ 99,999.98 $ 100,000.00 $ 199,999.98 $ 99,999.99 $ 92,999.99 $ 92,999.99 $ 61,379.99 $ 2,465.91 24 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 2,096.06 $ 99,999.99 $ 100,000.00 $ 199,999.99 $ 99,999.99 $ 92,999.99 $ 92,999.99 $ 61,380.00 $ 2,144.27 25 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 1,822.66 $ 99,999.99 $ 100,000.00 $ 199,999.99 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 1,864.58 26 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 1,584.92 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 1,621.37 27 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 1,378.19 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 1,409.89 28 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 1,198.43 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 1,225.99 29 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 1,042.11 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 1,066.08 30 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 906.18 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 927.03 31 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 787.99 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 806.11 32 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 685.20 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 700.96 33 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 595.83 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 609.53 34 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 518.11 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 530.03 35 $ 100,000.00 $ 100,000.00 $ 60,000.00 $ 450.53 $ 100,000.00 $ 100,000.00 $ 200,000.00 $ 100,000.00 $ 93,000.00 $ 93,000.00 $ 61,380.00 $ 460.90 NPV $ 396,996.45 $ 358,911.98Related Questions
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.