Firm D is considering investing $674,000 cash in a three-year project with the following cash flows....
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Firm D is considering investing $674,000 cash in a three-year project with the following cash flows. Year 1 $0 100,800 (40,440) $ 60,360 Year 2 $ 674,000 60,800 (18,240) $ 716,560 Investment/return of investment Revenues Expenses Before-tax net cash flow Year 0 $ (674,000) 134,800 (40,440) $ (579,640) Required: a1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. a2. Should firm D make the investment? b1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. b2. Should firm D make the investment? c1. The revenue is taxable, only one-half of the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. c2. Should firm D make the investment? d1. Firm D can deduct the expenses in the year paid (against other sources of income) but can defer recognizing the $296,400 total income until year 2. (It will collect the revenues as indicated in years 0, 1, and 2 so that before-tax cash flows don't change.) The marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. d2. Should firm D make the investment? Firm D is considering investing $674,000 cash in a three-year project with the following cash flows. Year 1 $0 100,800 (40,440) $ 60,360 Year 2 $ 674,000 60,800 (18,240) $ 716,560 Investment/return of investment Revenues Expenses Before-tax net cash flow Year 0 $ (674,000) 134,800 (40,440) $ (579,640) Required: a1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. a2. Should firm D make the investment? b1. The revenue is taxable, the expenses are deductible, and the marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. b2. Should firm D make the investment? c1. The revenue is taxable, only one-half of the expenses are deductible, and the marginal tax rate is 15 percent. Use a 10 percent discount rate to compute NPV. c2. Should firm D make the investment? d1. Firm D can deduct the expenses in the year paid (against other sources of income) but can defer recognizing the $296,400 total income until year 2. (It will collect the revenues as indicated in years 0, 1, and 2 so that before-tax cash flows don't change.) The marginal tax rate is 40 percent. Use a 10 percent discount rate to compute NPV. d2. Should firm D make the investment?
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Related Book For
Principles Of Taxation For Business And Investment Planning 2016 Edition
ISBN: 9781259549250
19th Edition
Authors: Sally Jones, Shelley Rhoades Catanach
Posted Date:
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