Answer Happy

Pear, an individual, plans to start a small business, which will operate as a corporation. In year 0, she expects the corporation to generate an ordinary loss of $1,300,000. Subsequently, she expects the corporation to be profitable, and projects ordinary profit of $1,950,000 in year 1, and $3,250,000 in year 2. Pear's personal marginal tax rate on ordinary income is 37%. Assuming a corporate tax rate of 21% and a 10% discount rate, calculate the present value of expected tax costs on the business earnings for the first 3 years of operations if the business does not make an S corporation election. Assume the excess business loss limitation does not apply. Round your discount rate calculations to three decimal places. $1,226,550 $1,544,400 $687,824 $1,168,115