mode : This shows what is correct or incorrect for the work you have completed s
ID: 2542677 • Letter: M
Question
mode : This shows what is correct or incorrect for the work you have completed so far. It does not indicate completion or incorr Return to question nvestor W has the opportunity to invest S810, follows. Use Appendix A and Appendix B 000 in a new venture. The projected cash flows from the venture are as Initial investment (818,eee) Deductible expenses Return of investment Before-tax net cash s(818,eee) 8e,10e s 75,1ee ear s92,5ee s 87,see s 77,500 s 72,5ee (12,400) (12,40) (16,9e) (16,988) 818,eee flow 68,600 $ 865,600 Investor W uses a 7 percent discount rate. a-1. Complete the table below to calculate NPV. Assume her marginal tax rate over the ife of the investment is 15 percent. a-2. Should Investor W make the investment? b-1. Complete the table below to calculate b-2. Should Investor W make the investment? c-1. Complete the table below to calculate NPV. Assume her marginal tax rate in years 1 and 2 is 10 percent a NPV. Assume her marginal tax rate over the life of the investment is 20 percent. and 4 is 25 percent. nd in years 3 c-2. Should Investor W make the investment? 3 Answer is not complete Complete this question by entering your answers in the tabs below. 0 Type here to searchExplanation / Answer
Solution a1 & a2:
As there is positive NPV of $5,433.86, hence investor W should make the investment.
Solution b1 and b2:
As there is negative NPV of $6,183.13, hence investor W should not make the investment.
Solution c1 and c2:
As there is positive NPV of $3,268.15, hence investor W should make the investment.
Computation of Present Value of Cash Flows & NPV Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Total Initial Investment -$810,000.00 Taxable Revenue $92,500.00 $87,500.00 $77,500.00 $72,500.00 Deductible Expenses -$12,400.00 -$12,400.00 -$16,900.00 -$16,900.00 Taxable Income $80,100.00 $75,100.00 $60,600.00 $55,600.00 Income Tax Expense (15%) $12,015.00 $11,265.00 $9,090.00 $8,340.00 After Tax Income $68,085.00 $63,835.00 $51,510.00 $47,260.00 Return of investment $810,000.00 After Tax Net Cash Flow -$810,000.00 $68,085.00 $63,835.00 $51,510.00 $857,260.00 PV Factor 1 0.934579 0.873439 0.816298 0.762895 Present Value of Cash Flows -$810,000.00 $63,630.84 $55,755.96 $42,047.50 $653,999.55 $5,433.86Related Questions
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