Margaret Daniels has the opportunity to invest $695,000 in a new venture. The projected cash flows from the venture are as follows.Use Appendix A and Appendix B.Initial investmentTaxable revenueDeductible expensesReturn of investmentBefore-tax net cash flowYear 0$ (695,000)Year 1Year 2Year 3Year 4$ 83,500(10,500)$ 78,500(10,500)$ 68,500(18,900)$ 63,500(18,900)695,000$ (695,000)$ 73,000$ 68,000$ 49,600$ 739,600Margaret uses a 7 percent discount rate.Required:a1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 15 percent.a2. Should Margaret make the investment?b1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 20 percent.b2. Should Margaret make the investment?c1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4is 25 percent.c2. Should Margaret make the investment?

To calculate the NPV and determine if Margaret should make the investment, we need to follow these…

Answered: Margaret Daniels has the opportunity to…

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter3: Organizing And Financing A New Venture

Section: Chapter Questions

Problem 5EP

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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 Req A1 Year 0 $ (285,000) Req A2 $ (285,000) 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? Req B1 Before-tax cash flow Tax cost Net cash flow Discount factor (8%) Present value NPV 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? Complete this question by entering your answers in the tabs below. Year 1 $ 54,800 (32,880) $ 21,920 Req B2 Year 0 Year 2 S $ 54,800 (8,220) $ 46,580 Complete the below…
Margaret Daniels has the opportunity to invest $665,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B. Initial investment Taxable revenue Deductible expenses Return of investment Before-tax net cash flow Year 0 $ (665,000) Year 1 $ 80,500 (15,300) $ (665,000) $ 65,200 Year 2 $ 75,500 (15,300) $ 60,200 Year 3 $ 65,500 (14,100) Year 4 $ 60,500 (14,100) 665,000 $ 51,400 $ 711,400 Margaret uses a 7 percent discount rate. Required: a1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 15 percent. a2. Should Margaret make the investment? b1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate over the life of the investment is 20 percent. b2. Should Margaret make the investment? c1. Complete the table below to calculate NPV. Assume Margaret's marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent. c2. Should…
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