Firm D is considering investing $628,000 cash in a three-year project with the following cash flows. Use Appendix A and Appendix B. Investment/return of investment Revenues Expenses Before-tax net cash flow Year Year 1 $(628,000) $ 125,600 91,600 (37,680) (37,680) $(540,080) $ 53,920 Year 2 $628,000 51,600 (15,480) $664,120 Required: a-1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. a-2. Should firm D make the investment? b-1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. b-2. Should firm D make the investment? C-1. The revenue is taxable, only one-half of the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. C-2. Should firm D make the investment? d-1. Firm D can deduct the expenses in the year paid (against other sources of income) but can defer recognizing the $268,800 total income until year 2. (It will collect the revenues as indicated in years 0, 1, and 2 so that before-tax cash flows don't change.) The marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. d-2. Should firm D make the investment? The revenue is taxable, the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Taxable Revenue Deductions Taxable income (Tax)/Tax Savings on Income (15%) 0 $ 0 $ 0 Before-tax cashflow (Tax)/Tax Savings After-tax net cash flow Discount factor (10%) Present Value NPV $ 0 $ 0 $ 0 The revenue is taxable, the expenses are deductible, and the marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Taxable Revenue Deductions Taxable income (Tax)/Tax Savings on Income (40%) 0 0 0 Before-tax cashflow (Tax)/Tax Savings After-tax net cash flow Discount Factor (10%) Present Value NPV $ 0 $ 0 $ 0 The revenue is taxable, only one-half of the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. (Deductions and Cash Outflows should be entered with a minus sign. Round discount factor(s) to 3 decimal places, all other intermediate calculations and final answers to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Taxable Revenue Deductions Taxable income (Tax)/Tax Savings on Income (15%) $ $ 0 $ 0 $ 0 Before-tax cashflow (Tax)/Tax Savings After-tax net cash flow Discount factor (10%) Present Value NPV $ 0 $ 0 $ 0
