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Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year O. How does
Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year O. How does the NPV of the transaction change if the firm could restructure the transaction in a way that doesn't change before-tax cash flow but results in no taxable income in year 0, $50,000 taxable income in year 1, and the remaining $50,000 taxable income in year 2? Assume a 6 percent discount rate and a 21 percent marginal tax rate for the three-year period. Use Appendix A and Appendix B. Required: a. Prepare a Original transaction. b. Prepare a Restructured transaction. Complete this question by entering your answers in the tabs below. Required A Required B Prepare a Original transaction. Note: Cash outflows should be indicated by a minus sign. Before-tax cash flow Tax cost Net cash flow NPV Year 0 Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year 0. How does the NPV of the transaction change if the firm could restructure the transaction in a way that doesn't change before-tax cash flow but results in no taxable income in year 0, $50,000 taxable income in year 1, and the remaining $50,000 taxable income in year 2? Assume a 6 percent discount rate and a 21 percent marginal tax rate for the three-year period. Use Appendix A and Appendix B. Required: a. Prepare a Original transaction. b. Prepare a Restructured transaction. Complete this question by entering your answers in the tabs below. Required A Required B Prepare a Restructured transaction. Note: Cash outflows should be indicated by a minus sign. Round discount factors to 3 decimal places. Before-tax cash flow Tax cost Net cash flow Discount factor (6%) Present value NPV Year 0 Year 1 Year 2
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