Assignment:
Assume the firm’s after-tax cost of capital is 6% per annum. What is the benefit of deferring $1 of income for 1 year, for 2 years, and for 5 years assuming the firm’s marginal tax rate is 35%? Suppose the firm expects the top statutory tax rate to increase to 40% next year. Does it still pay to defer income for 1 year, for 2 years, or for 5 years? Explain and discuss your results.
Provide complete and step by step solution for the question and show calculations and use formulas.