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Homework answers / question archive / Mr
Mr. Donald Heffernan, a 35 years old account manager At Wells Fargo has gross annual income after all deductibles of $85,000. Mrs. Heffernan quit her job at Walmart to take care of their twin kids, Luke and Christine. So Mr. Heffernan is the only income earner at his house hold.
Mr. Heffernan is filing income using the following
“Married filing jointly” tax rate schedule.
|
Taxable income over |
Not over |
Tax rate |
|
$0 |
18,450 |
10% |
|
18,451 |
74,900 |
15% |
|
74,901 |
151,200 |
25% |
|
151,201 |
230,450 |
28% |
|
230,451 |
411,500 |
33% |
|
411,501 |
464,850 |
35% |
|
464,851 |
…… |
39.6% |
Please show calculations for questions below.
1- Mr. Heffernan’s net annual income is:
2. Mr. Heffernan’s net Monthly income is:
3. Mrs. Heffernan just won the state sweepstake. She got two options to get her prize. (1) To receive $250,000 today. Or (2) to receive a monthly payment of $2000 for 25 years period. If Mrs. Heffernan appropriate discount rate is 6%. Which option should Mrs. Heffernan go with?
Note: if Mrs. Heffernan choose to go with option 1, she will invest the $250,000 at 6% to generate monthly income for the 25 years period.
4- The Heffernan’s total monthly income is:
Given,
Mr.Donald Heffernan's Gross annual income = $85,000
(1) Calculation of Mr.Heffernan's Net annual income:
Gross annual income. = $85,000
Less: Tax payable. =. $12,837
($85,000-$74,901)×25%+
($74,900-$18,451)×15%+
($18,450×10%)
Net annual income =. $72,163
(2) Calculation of Mr.Heffernan's net monthly income:
Net monthly income = Net annual income÷12
= $72,163÷12
= $6,013.58
(3) Option for Mrs.Heffernan whether to receive $2,50,000 today or to receive monthly payment of $2,000 for 25 years
Given, Discount rate = 6%
Option 1: price amount that will be received today = $2,50,000
Option 2: if monthly payment received @$2,000 for 25 years with 6% discount rate
Present value = $2,000×12×PVAF(6%,25) = $2,000×12×12.783 = $3,06,792
Therefore option 2 is the best, i.e., to receive monthly amount of $2,000 for 25 years as the amount received in option 2 is higher than in option 1.
(4) Calculation of Monthly income of Heffernan:
Monthly income of Mr.Heffernan = $6,013.58
Monthly income of Mrs.Heffernan = $2,000
Total. = $8,013.58
