Not secure 3. Taxes as Transaction Costs 6 Flrm E must choose between two busine

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Not secure 3. Taxes as Transaction Costs 6 Flrm E must choose between two business opportunities Opportunity 1 will generate an $11,040 deductibile loss in year 0, $6,900 taxable income in year 1, and $27,600 taxable income in year 2. Opportunity 2 will generate $7,900 taxable income in year O and $6.900 taxable income in years 1 and 2 The income and loss reflect before-tax cash inflow and outflow. Firm E uses a 5 percent discount rate and has a 40 percent marginal tax rate over the three-year period. Use Appendix A and Appendo B 10 o-1. Complete the tables below to calculate NPV a2. Which opportunity should Firm E choose? b-1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the three year period is 15 percent b-2. Which opportunity should Firm E choose? ok1 c-1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate is 40 percent in year O but only 15 percent in years 1 and 2 c-2. Which opportunity should Firm E choose? Pint Complete this question by entering your answers in the tabs below Deference Show less Reg ALReg A2Reg Req B1 Req B2 Req Ci Req C2 Complete the tables below to caloulate NPW. (Cash a decimal places, intermediate calculations and final answors to the nearest whole dollar amount). outflows should be Indicated by a minus sign. Round discount factor(s) to . Befors-lax cash now Tax cost Net cash Bow Discount factor (5%) Present value NPV Tax cost Net cash ow Present value NPV

Explanation / Answer

Note: Please submit Question #7 as separate question.

Question 6 Req A1 Year 0 Year 1 Year 2 Oppurtunity 1 Before tax cash flow -11040 6900 27600 Tax cost - 40% -4416 2760 11040 Net cash flow -15456 4140 16560 Discout factor - 5% 1 0.952 0.907 Present value -15456 3941.28 15019.92 NPV 3505.2 Oppurtunity 2 Before tax cash flow 7900 6900 6900 Tax cost - 40% 3160 2760 2760 Net cash flow 4740 4140 4140 Discout factor - 5% 1 0.952 0.907 Present value 4740 3941.28 3754.98 NPV 12436.26 Req A2 Which Opportunity should Firm E choose Oppurtunity 2 Req B-1 Year 0 Year 1 Year 2 Oppurtunity 1 Before tax cash flow -11040 6900 27600 Tax cost - 15% -1656 1035 4140 Net cash flow -12696 5865 23460 Discout factor - 5% 1 0.952 0.907 Present value -12696 5583.48 21278.22 NPV 14165.7 Oppurtunity 2 Before tax cash flow 7900 6900 6900 Tax cost - 15% 1185 1035 1035 Net cash flow 6715 5865 5865 Discout factor - 5% 1 0.952 0.907 Present value 6715 5583.48 5319.555 NPV 17618.04 Req B-2 Which Opportunity should Firm E choose Oppurtunity 2 Req C-1 Year 0 Year 1 Year 2 Oppurtunity 1 Before tax cash flow -11040 6900 27600 Tax cost -4416 1035 4140 Net cash flow -15456 5865 23460 Discout factor - 5% 1 0.952 0.907 Present value -15456 5583.48 21278.22 NPV 11405.7 Oppurtunity 2 Before tax cash flow 7900 6900 6900 Tax cost 3160 1035 1035 Net cash flow 4740 5865 5865 Discout factor - 5% 1 0.952 0.907 Present value 4740 5583.48 5319.555 NPV 15643.04 Req C-2 Which Opportunity should Firm E choose Oppurtunity 2

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