Firm Z, a corporation with a 21 percent tax rate, has $100,000 to invest in year 0 and two investment choices. Investment 1 will generate $12,000 taxable cash flow annually for years 1 through 5. In year 5, the firm can sell the investment for $100,000. Investment 2 will not generate any taxable income or cash flow in years 1 through 5, but in year 5, the firm can sell Investment 2 for $165,000. Use Appendix A and Appendix B.

Required:

a-1. Assuming a 6 percent discount rate, compute the NPV of Firm Z for each of the investments.

a-2. Which investment should Firm Z take?

b-1. Compute the NPV of Investment 2 if Firm Z is a noncorporate taxpayer with a 35 percent tax rate and the gain on sale of Investment 2 is eligible for the 15 percent capital gains rate.

b-2. Would your answer change from requirement a-2?

Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 Assuming a 6 percent discount rate, compute the NPV of Firm z for each of the investments. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediate calculations to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $ (100,000) $ o $ (100,000) $ 14,659 $ 12,000 $ (2,520) $ 9,480 $ 12,000 $ (2,520) $ 9,480 $ 12,000 $ (2,520) $ 9,480 $ 12,000 $ (2,520) $ 9,480 $ 112,000 $ (2,520) $ 109,480 Investment 1: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Investment 2: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV 0 0 0 $ $ $ 000 $ 0 $ (100,000) $ o $ (100,000) 13,097 0 0 $ $ $ 165,000 $ (13,650) $ 151,350 O $ 0 $ 0 0 $ Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req B1 Req B2 Compute the NPV of Investment 2 if Firm Z is a noncorporate taxpayer with a 35 percent tax rate and the gain on sale of Investment 2 is eligible for the 15 percent capital gains rate. (Negative amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and intermediate calculations to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $ (100,000) $ 0 $ 12,000 $ (4,200) $ 7,800 $ 12,000 $ (4,200) $ 7,800 $ 12,000 $ (4,200) $ 7,800 $ 12,000 $ (4,200) $ 7,800 $ 112,000 $ (4,200) $ 107,800 $ $ (100,000) $ 25,274 Investment 1: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV Investment 2: Before-tax cash flows Tax (cost) or savings After-tax cash flows NPV 0 0 0 $ 0 0 $ 0 $ (100,000) $ (100,000) $ (100,000) $ 7,554 $ $ $ 0 x>IX Ala >> $ 165,000 $ 0 $ 116,012 0 O 0 $ 0