Reese, 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. Reese can pay the $20,000 bill anytime before January 30 of next year without penalty. Assume Reeses marginal tax rate is 32 percent this year and will be 37 percent next year, and that she can earn an after-tax rate of return of 12 percent on her investments.

a. What is the after-tax cost if she pays the $20,000 bill in December?

b. What is the after-tax cost if she pays the $20,000 bill in January 30? Use Exhibit 3.1. (Round your answer to the nearest whole dollar amount.)

After tax cost:

EXHIBIT 3-1 Present Value of a Single Payment at Various Annual Rates of Return

4% 5% 6% 7% 8% 9% 10% 11% 12%

Year 1 .962 .952 .943 .935 .926 .917 .909 .901 .893

Year 2 .925 .907 .890 .873 .857 .842 .826 .812 .797

Year 3 .889 .864 .840 .816 .794 .772 .751 .731 .712

Year 4 .855 .823 .792 .763 .735 .708 .683 .659 .636

Year 5 .822 .784 .747 .713 .681 .650 .621 .593 .567

Year 6 .790 .746 .705 .666 .630 .596 .564 .535 .507

Year 7 .760 .711 .665 .623 .583 .547 .513 .482 .452

Year 8 .731 .677 .627 .582 .540 .502 .467 .434 .404

Year 9 .703 .645 .592 .544 .500 .460 .424 .391 .361

Year 10 .676 .614 .558 .508 .463 .422 .386 .352 .322

Year 11 .650 .585 .527 .475 .429 .388 .350 .317 .287

Year 12 .625 .557 .497 .444 .397 .356 .319 .286 .257

Year 13 .601 .530 .469 .415 .368 .326 .290 .258 .229

Year 14 .577 .505 .442 .388 .340 .299 .263 .232 .205

Year 15 .555 .481 .417 .362 .315 .275 .239 .209 .183