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Garden Company has the opportunity to invest $60,000 in a machine that would generate the revenue and incur expenses as follows over 3 years period
Garden Company has the opportunity to invest $60,000 in a machine that would generate the revenue and incur expenses as follows over 3 years period Year 0 Year 1 Year 2 Year 3 (60,000) 30,000 (20,000) 40,000 (20,000) 60,000 (20,000) Investment Revenue Depreciation Other cash expense + deductible expense + non deductible expense (5,000) (2,000) (10,000) (3,000) (15,000) (5,000) a. Should Garden company make the investment if the revenue is taxable when received, the firmA's marginal tax rate is 40% discount rate is 5%, and all depreciation is deductible? b. Should Garden company make the investment if the company can defer recognizing all revenue until year 3 (it will collect the revenue in year 1,2,3 so that the before tax cash flows don't change), the firm's marginal tax rate at year 3 is 20%, discount rate is 5%, and all depreciation is deductible
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