4. The controller is worried about tax increases and estimates that the tax rate with be raised to 50% (federal and Maryland state) in year 4. Also there is a concern that expenses are understated. He asks, "What would happen to the NPV calculation if the cash tax expenses come in 2% higher than estimated and the tax rate increases to 50% in year 4?" This will allow a subjective evaluation of the project risk. Calculate a new cash flow time line with cash expenses 10% higher than those in Table 2 and with a 50% tax rate. Use Table 3

5. What would be the net present value, NPV in this "worst case" cash flow? What will be the IRR?

			Table 3
	A	B	C	D	E	F
Year	Cash from Revenue in $Millions	Cash outflow, expenses in $Millions	Depreciation in $Millions	Taxable Income in $ Millions	Tax in $Millions 27.5% rate in years 1 , 2, 3 and 50% there after	After tax Cash Flow In $Millions
1	$1,800	$1,762.56	$50.02	-$12.57	-$3.46	$40.90
2	$1,900	$1,860.48	$85.72	-$46.20	-$12.70	$52.22
3	$2,000	$1,958.40	$61.22	-$19.62	-$5.39	$46.99
4	$2,100	$2,056.32	$43.72	-$0.04	-$0.02	$43.70
5	$2,200	$2,154.24	$31.26	$14.50	$7.25	$38.51
6	$2,300	$2,252.16	$31.22	$16.62	$8.31	$39.53
7	$2,400	$2,350.08	$31.26	$18.67	$9.33	$40.59
8	$2,500	$2,448.00	$15.61	$36.39	$18.20	$33.81
9	$2,600	$2,545.92	$0.00	$54.08	$27.04	$27.04
10	$2,700	$2,643.84	$0.00	$56.16	$28.08	$28.08
11	$2,600	$2,545.92	$0.00	$54.08	$27.04	$27.04
12	$2,500	$2,448.00	$0.00	$52.00	$26.00	$26.00
13	$2,400	$2,350.08	$0.00	$49.92	$24.96	$24.96
14	$2,200	$2,154.24	$0.00	$45.76	$22.88	$22.88
15	$2,000	$1,958.40	$0.00	$41.60	$20.80	$20.80
16	$1,800	$1,762.56	$0.00	$37.44	$18.72	$18.72
17	$1,500	$1,468.80	$0.00	$31.20	$15.60	$15.60
18	$1,200	$1,175.04	$0.00	$24.96	$12.48	$12.48
19	$800	$783.36	$0.00	$16.64	$8.32	$8.32
20	$400	$391.68	$0.00	$8.32	$4.16	$4.16