Question1. You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $15,000 to buy and which will have OCF of -$2,200 annually throughout the vehicle's anticipated life of 3 years as a delivery vehicle; and the Toyota Prius, which will cost $28,000 to buy and which will have OCF of -$650 annually throughout that vehicles anticipated four-year life. Both cars will be worthless at the end of their life. When you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out in the foreseeable future, and if your business has a cost of capital of 13 percent, what is EAC of the least expensive car?
Question2. Compute the tax disadvantage to organizing a U.S. business today as a corporation, as compared to a partnership, under the following conditions: suppose that all earnings will be paid out as cash dividends. Operating income will be $500,000 per year under either an organizational form. The tax rate on corporate profits is 35%, the average personal tax rate for partners is also 35%, and the capital gains tax rate on dividend income is 15%.
Question3. Now recomputed the tax disadvantage using the same income however with the maximum tax rates that existed before 2003 (35% on corporate profits and 38.6% on personal investment income)