Investor W has the opportunity to invest $500,000 in a new venture. The projected cash flows from the venture are as follows.

Investor W uses a 7 percent discount rate to compute NPV. Determine if she should make this investment assuming that:
a. Her marginal tax rate over the life of the investment is 15 percent.
b. Her marginal tax rate over the life of the investment is 20 percent.
c. Her marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent.

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Year 0 Year 1 Year2 Year 3 Year 4 $(500,000) Initial nvestment i Taxable revenue Deductible penses Return of investment Before-tax net cash flow $(500,000) S 62,500 57,500 47,500 $ 42,500 (10,000) 10,000) (12,000) (12,000) 500,000 52,500 47,500 $35,500 $530,500