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hese problems must be submitted in an Excel worksheet, with each problem on a separate tab.

Label the tabs accordingly. You must show your work for each problem. Problems:

$1.$ Julia currently is considering the purchase of some land to be held as an investment. She

and the seller have agreed on a contract under which Julia would pay $$1,000$ per month

for $60$ months, or $$60,000$ total. The seller, not in the real estate business, acquired the

land several years ago by paying $$10,000$ in cash. Two alternative interpretations of this

transaction are $(1)$ a price of $$51,726$ with $6$ percent interest and $(2)$ a price of $$39,380$

with $18$ percent interest. Which interpretation would you expect each party to prefer?

Why?

$2.$ Assume that a taxpayer can choose when he is to receive $$10,000$ of fully taxable

income. If the taxpayer receives the income at the end of Year $1,$ he will receive exactly

$$10,000.$ If he delays receipt of the income until the end of Year $2,$ the amount will grow

to $$11,000.$ If the taxpayer takes the money at the end of Year $1,$ he can invest the

proceeds and earn a pre$-$tax return of $10$ percent over the next year.

a$.$ If the taxpayer faces a marginal tax rate of $31$ percent in both Year $1$ and Year $2,$

when should he elect to receive the income?

b$.$ At what pre$-$ tax rate of return, will the taxpayer be indifferent to taking the money

in Year $1$ and Year $2?$

c$.$ If the taxpayer$$s marginal tax rate increases to $35$ percent in Year $2,$ when should

he elect to receive the income?

d$.$ What would the tax rate need to be in Year $2$ to make the taxpayer indifferent?

$3.$ A taxpayer can invest $$10,000$ in a taxable $10-$year bond that yields an annual pretax

return of $6$ percent or buy land $($a capital asset$)$ for $$10,000$ that is expected to increase at

an annual pre$-$tax rate of $4$ percent. The taxpayer expects to hold the bond and the land

for $10$ years and expects to pay capital gains taxes of $20$ percent when the land is sold.

ACCT $612$

$2$

The taxpayer$$s marginal tax rate on ordinary income is expected to be $25$ percent

throughout the $10-$year period.

$4.$ Greg Jones lives in Augusta, Georgia and has the opportunity to rent his condominium

during the next Masters golf tournament. He has $2$ offers$$ one to rent for $10$ days at

$$500$ per day and the other to rent for $16$ days at $$400$ per day. Rental expenses will be

negligible. What is your advice to Greg?

$5.$ Paris Corporation holds a $$100,000$ unrealized net capital gain and a capital loss

carryforward that will expire in the current year. Paris is subject to a $14$ percent cost of

capital. Its marginal tax rate is $40$ percent. Should Paris accelerate the recognition of this

gain from next year to this year, assuming a net capital loss carryforward in each of the

following amounts?

a$.$ $$40,000$

b$.$ $$10,000$

c$.$ Repeat parts a and b assume that Paris is subject to a $6$ percent cost of capital.

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