Firm X has the opportunity to invest $259,000 in a new venture. The projected cash flows...

  

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Firm X has the opportunity to invest $259,000 in a new venture. The projected cash flows from the venture are as follows. Initial investment Revenues Expenses Return of investment Before-tax net cash flow Year 0 $ (259,000) Year 1 $ 46,000 (27,600) $ (259,000) $ 18,400 Year 2 $ 46,000 (6,900) $ 39,100 Year 3 $ 46,000 (6,900) 259,000 $ 298,100 Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 30 percent. Required: a-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible. a-2. Should firm X make the investment? b-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible. b-2. Should firm X make the investment? Firm X has the opportunity to invest $259,000 in a new venture. The projected cash flows from the venture are as follows. Initial investment Revenues Expenses Return of investment Before-tax net cash flow Year 0 $ (259,000) Year 1 $ 46,000 (27,600) $ (259,000) $ 18,400 Year 2 $ 46,000 (6,900) $ 39,100 Year 3 $ 46,000 (6,900) 259,000 $ 298,100 Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 30 percent. Required: a-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible. a-2. Should firm X make the investment? b-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible. b-2. Should firm X make the investment?

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