Margaret Daniels has the opportunity to invest $695,000 in a new venture. The projected cash flows...

Transcribed Image Text:

Margaret Daniels has the opportunity to invest $695,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Taxable revenue Deductible expenses Return of investment Before-tax net cash flow Year 0 $ (695,000) Year 1 Year 2 Year 3 Year 4 $ 83,500 (10,500) $ 78,500 (10,500) $ 68,500 (18,900) $ 63,500 (18,900) 695,000 $ (695,000) $ 73,000 $ 68,000 $ 49,600 $ 739,600 Margaret uses a 7 percent discount rate. Required: a1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 15 percent. a2. Should Margaret make the investment? b1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 20 percent. b2. Should Margaret make the investment? c1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent. c2. Should Margaret make the investment? Margaret Daniels has the opportunity to invest $695,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Taxable revenue Deductible expenses Return of investment Before-tax net cash flow Year 0 $ (695,000) Year 1 Year 2 Year 3 Year 4 $ 83,500 (10,500) $ 78,500 (10,500) $ 68,500 (18,900) $ 63,500 (18,900) 695,000 $ (695,000) $ 73,000 $ 68,000 $ 49,600 $ 739,600 Margaret uses a 7 percent discount rate. Required: a1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 15 percent. a2. Should Margaret make the investment? b1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 20 percent. b2. Should Margaret make the investment? c1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent. c2. Should Margaret make the investment?