You form an LLC and spend $5,000,000 to purchase a patent that expires in 17 years and becomes public domain (i.e. no salvage value). You immediately turn around and sell the exclusive rights to the patent for a fixed $1,000,000 per year for the life of the patent.

1. Compute the IRR of this cash flow before taxes and depreciation and then write the formula to calculate Taxable Income [3 pts]

Compute the annual depreciation and resulting book values (depreciation schedules) using:

b. The Straight Line Depreciation Method [3 pts]

c. The 150%-Declining-Balance Method [3 pts]

d. The Double-Declining-Balance Method [3 pts]

You are attempting to forecast your taxes. The current corporate tax rate is 21%, however most analysts agree that the corporate tax rate will change to 28% within the next four years.

e. If you use the Straight-Line Depreciation method, how much will you pay in taxes next year (at 21%)? [2 pts]

f. If you use the Straight-Line Depreciation method, how much will you pay in taxes in four years (at 28%)? [2 pts]

g. If you use the Double-Declining-Balance Method, how much will you pay in taxes next year (at 21%)? [2 pts]

h. If you use the Double-Declining-Balance Method, how much will you pay in taxes in four years (at 28%)? [2 pts]