Corporation VB was formed in 2018. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2018, or wait until 2019. However, if it waits, the cost of the expenditure will increase to $525,000. Before considering this expenditure, VB has the following projected pretax cash flows and taxable income for 2018, 2019, and 2020.

a. Using a 5 percent discount rate, compute the NPV of VB€™s aftertax cash flows if the expenditure is in 2018.

b. Using a 5 percent discount rate, compute the NPV of VB€™s aftertax cash flows if the expenditure is in 2019.

c. Based on your calculations, when should VB make this expenditure?

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2019 2018 2020 Taxable income and pretax cash flow $120,000 $400,000 $700,000