Corporation VB was formed in 2022. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2022, or wait until 2023. However, if it waits, the cost of the expenditure will increase to $525,000. Before considering this expenditure, VB has the following projected pretax cash flows and taxable income for 2022, 2023, and 2024:

a. Using a 5 percent discount rate, compute the NPV of VB’s after-tax cash flows if the expenditure is in 2022.

b. Using a 5 percent discount rate, compute the NPV of VB’s after-tax cash flows if the expenditure is in 2023.

c. Based on your calculations, when should VB make this expenditure?

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Taxable income and pretax cash flow 2022 $120,000 2023 $400,000 2024 $700,000