Question
A taxpayer is considering two mutually exclusive alternatives: Alternative A is to hire a tax planner for $20,000, who, if successful (@75% probability), would save
A taxpayer is considering two mutually exclusive alternatives: Alternative A is to hire a tax planner for $20,000, who, if successful (@75% probability), would save the taxpayer $21,000, net of taxes. Alternative B is to hire a marketing consultant for $18,000 to change the advertising strategy, which, if successful (@80% probability) would reduce advertising costs by $25,000 without affecting revenue. At what whole number (e.g. 15%) tax rate between 15% and 35% is the net effect of the alternatives closest to each other (about $100 difference). Please enter your response as whole number, without the "%". Hint: multiply the probability of success by the after tax effect to get the expected value, after tax and compare these results.
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