Firm D is considering investing $400,000 cash in a three-year project with the following cash flows:

Under each of the following assumptions, determine if Firm D should make the investment. In each case, use a 10 percent discount rate to compute NPV.

-The revenue is taxable, the expenses are deductible, and the marginal tax rate is 15 percent. -The revenue is taxable, the expenses are deductible, and the marginal tax rate is 40 percent. -The revenue is taxable, only one-half of the expenses are deductible, and the marginal tax rate is 15 percent. -Firm D can deduct the expenses in the year paid (against other sources of income) but can defer recognizing the $180,000 total income until year 2. (It will collect the revenues as indicated in years 0, 1, and 2 so that before-tax cash flows dont change.) The marginal tax rate is 40 percent."

\begin{tabular}{lcrr} \hline & Year 0 & Year 1 & Year 2 \\ \hline (Investment)/return of investment & $(400,000) & 0 & $400,000 \\ Revenues & 80,000 & $65,000 & 35,000 \\ Expenses & (25,000) & (10,000)(25,000) & $425,000(340,000 \\ Before-tax net cash flow & $(345,000) & = & = \\ \hline \end{tabular}