French Corporation wishes to hire Leslie as a consultant to design a comprehensive staff training program. The project is expected to take one year, and the parties have agreed to a tentative price of $66,000. French Corporation has proposed payment of one half of the fee now, with the remainder paid in one year when the project is complete. Use Appendix A and Appendix B Required: a. If Leslie expects her marginal tax rate to be 20 percent this year and 30 percent next year, calculate the after-tax net present value b. French Corporation expects its marginal tax rate to be 26 percent both years. Calculate the net present value of French's after-tax cost to enter into this contract using a 6 percent discount rate. C-1. Given that Leslie expects her tax rate to increase next year, she would prefer to receive more of the income from the project up front. Consider an alternative proposal under which French pays Leslie $46,000 this year, and $17,000 in one year when the contract is complete Calculate the after-tax benefit of this counterproposal to Leslie and the after-tax cost to French. c-2. Are both parties better off under this alternative than under the original plan? Complete this question by entering your answers in the tabs below. Reg A ReqB ReqC Reg C2 If Leslie expects her marginal tax rate to be 20 percent this year and 30 percent next year, calculate the after-tax net present value of this contract to Leslie, using a 6 percent discount rate (Cash outflows and Negative amount should be indicated by a minus sign. Round discount factors to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount) Amount Amount $ 0 Year 0: Cash received Tax cost Net cash flow Year 1: Cash received Tax cost Net cash flow Discount factor (6%) Present value of year 1 cash flow NPV 0 ROGA ReqB > k #2 Save TOWY Req A Req B Req C1 Req C2 French Corporation expects its marginal tax rate to be 26 percent both yea after-tax cost to enter into this contract using a 6 percent discount rate. (C indicated by a minus sign. Round discount factors to 3 decimal places, inte nearest whole dollar amount.) Amount A 0 Year 0: Cash paid Tax savings Net cash flow Year 1: Cash paid Tax savings Net cash flow Discount factor (6%) Present value of year 1 cash flow NPV $ 0
