Firm X has the opportunity to invest $308,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B.

	Year 0	Year 1	Year 2	Year 3
Initial investment	$ (308,000)
Revenues		$ 63,200	$ 63,200	$ 63,200
Expenses		(37,920)	(9,480)	(9,480)
Return of investment				308,000
Before-tax net cash flow	$ (308,000)	$ 25,280	$ 53,720	$ 361,720

Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 35 percent.

Required:

1. a-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible.
2. a-2. Should firm X make the investment?
3. b-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible.
4. b-2. Should firm X make the investment?

Year 0 Year 1 Year 2 Year 3 Before-tax cash flow Tax cost Net cash flow Discount factor (8%) Present value NPV Year 0 Year 1 Year 2 Year 3 Before-tax cash flow Tax cost Net cash flow Discount factor (8%) Present value NPV