Grant and Marvin organized a new business as a corporation in which they own equal interests The new business generated a $65,000 operating loss for the year Use Appendix A Required Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate Calculate the net present value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate (Do not round intermediate computations Round your final answer to the nearest whole dollar amount ) Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity If Grants marginal tax rate is 35 percent and Marvins marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss Assume the basis and excess business loss limitations do not apply APPENDIX A APPENDIX A Present Value of $1 Periods 3 4 5 6 7 8 9 1 971 962 952 943 935 926 917 2 943 925 907 890 873 857 842 3 915 889 864 840 816 794 772 4 888 855 823 792 763 735 708 5 863 822 784 747 713 681 650 6 837 790 746 705 666 630 596 7 813 760 711 665 623 583 547 8 789 731 677 627 582 540 502 9 766 703 645 592 544 500 460 10 744 676 614 558 508 463 422 11 722 650 585 527 475 429 388 12 701 625 557 497 444 397 356 13 681 601 530 469 415 368 326 14 661 577 505 442 388 340 299 15 642 555 481 417 362 315 275 16 623 534 458 394 339 292 252 17 605 513 436 371 317 270 231 18 587 494 416 350 296 250 212 19 570 475 396 331 277 232 194 20 554 456 377 312 258 215 178 Periods 10 11 12 13 14 15 20 1 909 901 893 885 877 870 833 2 826 812 797 783 769 756 694 3 751 731 712 693 675 658 579 4 683 659 636 613 592 572 482 5 621 593 567 543 519 497 402 6 564 535 507 480 456 432 335 7 513 482 452 425 400 376 279 8 467 434 404 376 351 327 233 9 424 391 361 333 308 284 194 10 386 352 322 295 270 247 162 11 350 317 287 261 237 215 135 12 319 286 257 231 208 187 112 13 290 258 229 204 182 163 093 14 263 232 205 181 160 141 078 15 239 209 183 160 140 123 065 16 218 188 163 141 123 107 054 17 198 170 146 125 108 093 045 18 180 153 130 111 095 081 038 19 164 138 116 098 083 070 031 20 149 124 104 087 073 061 026

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Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for

Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. Use Appendix A.

Required:

Assume the corporation expects to generate $500,000 of income next year and has a 21 percent tax rate. Calculate the net present value of the future tax savings associated with the current year operating loss, using a 4 percent discount rate. (Do not round intermediate computations. Round your final answer to the nearest whole dollar amount.)
Now assume that the corporation makes an election under Subchapter S to be treated as a passthrough entity. If Grants marginal tax rate is 35 percent and Marvins marginal tax rate is 37 percent, calculate the tax savings associated with the current year operating loss. Assume the basis and excess business loss limitations do not apply.

APPENDIX A:

APPENDIX A

Present Value of $1

Periods	3%	4%	5%	6%	7%	8%	9%
1	.971	.962	.952	.943	.935	.926	.917
2	.943	.925	.907	.890	.873	.857	.842
3	.915	.889	.864	.840	.816	.794	.772
4	.888	.855	.823	.792	.763	.735	.708
5	.863	.822	.784	.747	.713	.681	.650
6	.837	.790	.746	.705	.666	.630	.596
7	.813	.760	.711	.665	.623	.583	.547
8	.789	.731	.677	.627	.582	.540	.502
9	.766	.703	.645	.592	.544	.500	.460
10	.744	.676	.614	.558	.508	.463	.422
11	.722	.650	.585	.527	.475	.429	.388
12	.701	.625	.557	.497	.444	.397	.356
13	.681	.601	.530	.469	.415	.368	.326
14	.661	.577	.505	.442	.388	.340	.299
15	.642	.555	.481	.417	.362	.315	.275
16	.623	.534	.458	.394	.339	.292	.252
17	.605	.513	.436	.371	.317	.270	.231
18	.587	.494	.416	.350	.296	.250	.212
19	.570	.475	.396	.331	.277	.232	.194
20	.554	.456	.377	.312	.258	.215	.178

Periods	10%	11%	12%	13%	14%	15%	20%
1	.909	.901	.893	.885	.877	.870	.833
2	.826	.812	.797	.783	.769	.756	.694
3	.751	.731	.712	.693	.675	.658	.579
4	.683	.659	.636	.613	.592	.572	.482
5	.621	.593	.567	.543	.519	.497	.402
6	.564	.535	.507	.480	.456	.432	.335
7	.513	.482	.452	.425	.400	.376	.279
8	.467	.434	.404	.376	.351	.327	.233
9	.424	.391	.361	.333	.308	.284	.194
10	.386	.352	.322	.295	.270	.247	.162
11	.350	.317	.287	.261	.237	.215	.135
12	.319	.286	.257	.231	.208	.187	.112
13	.290	.258	.229	.204	.182	.163	.093
14	.263	.232	.205	.181	.160	.141	.078
15	.239	.209	.183	.160	.140	.123	.065
16	.218	.188	.163	.141	.123	.107	.054
17	.198	.170	.146	.125	.108	.093	.045
18	.180	.153	.130	.111	.095	.081	.038
19	.164	.138	.116	.098	.083	.070	.031
20	.149	.124	.104	.087	.073	.061	.026