Firm W, which has a 34 percent marginal tax rate, plans to operate a new business that should generate $48,000 annual cash flow and ordinary income for three years (years 0, 1, and 2). Alternatively, Firm W could form a new taxable entity (Entity N) to operate the business. Entity N would pay tax on the three-year income stream at a 24 percent rate. The nondeductible cost of forming Entity N would be $5,800. Firm W uses a 6 percent discount rate. Use Appendix A and Appendix B. Required: Complete the below tables to calculate NPV. Should it operate the new business directly or form Entity N to operate the business
Firm W, which has a 34 percent marginal tax rate, plans to operate a new business that should generate $48,000 annual cash flow and ordinary income for three years (years 0, 1, and 2). Alternatively, Firm W could form a new taxable entity (Entity N) to operate the business. Entity N would pay tax on the three-year income stream at a 24 percent rate. The nondeductible cost of forming Entity N would be $5,800. Firm W uses a 6 percent discount rate. Use Appendix A and Appendix B. Required: Complete the below tables to calculate NPV. Should it operate the new business directly or form Entity N to operate the business
Chapter4: Income Exclusions
Section: Chapter Questions
Problem 76IIP
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Firm W, which has a 34 percent marginal tax rate, plans to operate a new business that should generate $48,000 annual
Required:
- Complete the below tables to calculate NPV.
- Should it operate the new business directly or form Entity N to operate the business
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