Firm X has the opportunity to invest $285,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Revenues Expenses Return of investment. Before-tax net cash flow Year 0 $ (285,000) Year 1 $ 54,800 (32,880) $ (285,000) $ 21,920 Year 2 $ 54,800 (8,220) $46,580 Year 3 Complete this question by entering your answers in the tabs below. $ 54,800 (8,220) 285,000 $ 331,580 Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 30 percent. Required: a1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible. a2. Should firm X make the investment? b1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible. b2. Should firm X make the investment?
Firm X has the opportunity to invest $285,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Revenues Expenses Return of investment. Before-tax net cash flow Year 0 $ (285,000) Year 1 $ 54,800 (32,880) $ (285,000) $ 21,920 Year 2 $ 54,800 (8,220) $46,580 Year 3 Complete this question by entering your answers in the tabs below. $ 54,800 (8,220) 285,000 $ 331,580 Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 30 percent. Required: a1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible. a2. Should firm X make the investment? b1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible. b2. Should firm X make the investment?
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter21: Dynamic Capital Structures And Corporate Valuation
Section: Chapter Questions
Problem 9P
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