Part 1 Isabel, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Isabel can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume her marginal tax rate is 37 percent this year and next year, and that she can earn an after-tax rate of return of 8 percent on her investments. A. What is the after-tax cost if Isabel pays the $20,000 bill in December? B. What is the after-tax cost if Isabel pays the $20,000 bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. C. Based on requirements a and b, should Isabel pay the $20,000 bill in December or January? Part 2 Manny, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Manny typically requires his clients to pay his bills immediately upon receipt. Assume Manny's marginal tax rate is 37 percent this year and next year, and that he can earn an after-tax rate of return of 8 percent on his investments. A. What is the after-tax income if Manny sends his client the bill in December? B. What is the after-tax income if Manny sends his client the bill in January? Use Exhibit 3.1. Note: Round your answer to the nearest whole dollar amount. C. Based on requirements a and b, should Manny send his client the bill in December or January? Exhibit 3.1 EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return 7% 8% 9% 10% 11% 12% 0.935 0.926 0.917 0.909 0.901 0.893 0.873 0.857 0.842 0.826 0.816 | 0.794 | 0.772 | 0.751 0.812 0.797 0.731 0.712 0.659 0.636 0.593 0.567 4% 5% 6% Year 1 0.962 0.952 0.943 Year 2 0.925 0.907 0.890 Year 3 0.889 0.864 0.840 Year 4 0.855 0.823 0.792 0.763 0.735 0.708 0.683 Year 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 Year 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 Year 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 Year 8 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 Year 9 0.703 0.645 0.592 0.544 | 0.500 | 0.460 | 0.424 | 0.391 0.361 Year 10 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 Year 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 Year 12 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 Year 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 Year 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 Year 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183