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 $50,000. 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. a. If Leslie expects her marginal tax rate to be 15 percent this year and 25 percent next year, calculate the after-tax net present value of this contract to Leslie, using a 6 percent discount rate. b. French Corporation expects its marginal tax rate to be 21 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 $35,000 this year, and $13,000 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. Req A Req B Req C1 Req C2 If Leslie expects her marginal tax rate to be 15 percent this year and 25 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 factor(s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount. 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 Req C1 Req A Req A Req B Req C1 Req C2 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 $35,000 this year, and $13,000 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. (Cash outflows and Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount.) Show less A Value of restructured transaction to Leslie: 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 Cost of restructured transaction to French: 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 Reg C2> Req B Next> KPrev 19 of 21 Appendix A Value of $1 Present Periods 3% 4% 5% 6% 7% 8% 9% .971 962 952 943 935 .926 .857 .794 .735 681 917 1 943 915 .925 .889 .855 .822 .907 .864 .823 .784 890 840 792 .747 .873 .816 763 713 .842 772 .708 650 2 3 .888 .863 4 5 .790 760 746 711 666 623 630 583 596 547 6 .837 .813 705 665 7 789 .766 744 677 645 614 627 .592 558 582 544 508 540 500 463 502 460 422 8 73. .703 .676 10 11 12 722 701 .650 .625 585 .527 497 469 442 475 429 388 356 326 299 557 444 397 13 681 601 530 415 368 388 340 14 .661 577 505 15 16 642 555 .534 481 458 436 417 .362 .339 317 315 275 623 394 292 252 17 605 .513 371 270 231 587 212 18 494 .416 350 296 250 19 570 475 396 331 277 .232 194 20 554 456 377 312 258 178 215 20% Periods 10% 11% 12% 13% 14% 15% 909 .893 885 .870 833 1 901 877 826 751 683 812 731 659 797 712 .636 783 .693 613 769 675 592 756 658 572 497 432 694 2 3 579 482 4 621 .593 535 567 .507 452 404 .543 519 402 335 279 233 5 6 564 480 456 513 482 425 376 333 .295 261 400 .351 376 7 467 434 327 8 284 .247 424 391 361 .308 270 194 386 322 10 11 352 162 350 319 319 290 317 286 287 237 215 135 257 .231 .208 12 187 112 163 13 258 229 .204 182 093 .078 065 14 263 232 205 181 160 141 15 239 209 183 160 140 123 16 .218 188 163 14 123 107 054 108 045 17 .198 .170 146 125 093 18 180 153 130 111 095 081 038 19 164 138 .116 098 083 070 031 20 .104 073 .149 124 087 061 026 A-2 Appendix B Present Value of Annuity of $1 Periods 3% 4% 5% 6% 7% 8% 9% 926 .971 962 952 943 917 .935 1.886 1.859 1.833 1.808 1.759 1./83 3.546 3.717 4,580 5.417 3.630 4,452 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 3.387 4.100 4.767 5.389 3.312 3.993 4.623 5.206 5.747 6.247 6.710 3.240 .890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 .756 .950 9.129 4.329 5.076 6 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 7 6.230 7.020 5.786 6.463 7.108 7.722 8.306 8 5.971 6.515 7.786 8.530 9.253 9.954 10.635 11.296 11.938 10 11 12 13 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 7.139 7.536 7.904 8.244 8.559 8.863 9.394 9.899 10.380 10.838 14 15 16 17 18 19 20 10.563 11.1 18 11.652 12.561 13.166 13.754 14.324 14.877 10.106 10.477 10.828 11.158 11.470 8.851 9.122 9.372 9.604 9.818 12.166 12.659 13.134 13.590 11.274 11.690 12.085 12.462 20% Periods 10% 11% 12% 13% 14% 15% 909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 .901 893 1.690 2.402 .885 877 1.647 870 833 1.528 2.106 2.589 1 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 5.234 1.713 2.444 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5,687 2.322 2.914 3.433 .889 4.288 4.639 4.946 5.216 5.453 3.102 3.696 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 4 2.991 3.326 3.605 3.837 4.03 4.192 4.327 4.439 6 4.231 4.712 5.146 5.537 5.889 6.207 7 8 10 11 6.495 6.814 7.103 7.367 7.606 12 13 6,492 6.750 6.982 7.191 5.918 6.122 6.302 5.660 5.842 6.002 6.142 5.421 5.583 5.724 6.424 4.533 4.611 4.675 4.730 6.628 14 15 16 17 18 19 20 6.811 6.974 7.120 7.250 7.366 7.469 6.462 6,604 6.729 6.840 6.938 7.025 5.847 5.954 6.047 6.128 6.198 6.259 7.824 8.022 8.201 8.365 8.514 7.379 7.549 7.702 7.839 7.963 6.265 6.373 6.467 6.550 6.623 4.775 4.812 4.843 4,870 A-3