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Andrew is considering starting a business of constructing and selling prefabricated greenhouses. There are three very different methods to constructing these greenhouses, and each method results in different revenue and cost projections. Below, Andrew has projected the qualifying revenue and costs for each method. The selling price includes qualifying receipts. The allocable expenses include wages and allocable expenses are included in total costs.

	Selling	Qualifying	Total	Allocable	Allocable
Method	Price	Receipts	Cost	Expenses	Wages
#1	$13,000	$ 9,000	$ 6,500	$ 2,500	$ 2,000
#2	14,000	9,000	7,400	5,500	1,500
#3	15,000	14,000	8,600	2,000	1,000

a.	Estimate the tax benefit from the domestic production activities deduction for each construction technique. You may assume that Andrew has sufficient AGI to utilize the deduction and that his marginal tax rate is 30 percent.

Method 1	Method 2	Method 3
Qualified domestic receipts
Allocable expenses
QPAI
Statutory percentage
Initial DPAD
50% wage limit
DPAD limit
MTR
Tax benefit of DPAD

b.	Which construction technique should Andrew use if his marginal tax rate is 30 percent?

	Method 1 Method 2 Method 3 Selling price Total costs Pretax income 1-MTR After-tax income DPAD tax benefit (MTR = 30%) Income after tax and DPAD benefit

Andrew should choose? _________________________

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