Firm E must choose between two business opportunities. Opportunity 1 will generate an $14,240 deductible loss in year $8,900taxable income in year 1, and $35,600 taxable income in year 2. Opportunity 2 will generate $9,900 taxable income in year O and$8,900 taxable income in years 1 and 2. The income and loss reflect before-tax cash inflow and outflow. Firm E uses a 5 percentdiscount rate and has a 40 percent marginal tax rate over the three-year period. Use Appendix A and Appendix B.Required:a1. Complete the tables below to calculate NPV.a2. Which opportunity should Firm E choose?b1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the three-year period is 15 percent.b2. Which opportunity should Firm E choose?c1. 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 1and 2.c2. Which opportunity should Firm E choose?

The net cash flows can be found by deducting taxes from the taxable income (assuming that there is…

Answered: Firm E must choose between two business…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter6: Accounting For Financial Management

Section: Chapter Questions

Problem 12P

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Firm E must choose between two business opportunities. Opportunity 1 will generate an $11,200 deductible loss in year 0, $7,000 taxable income in year 1, and $28,000 taxable income in year 2. Opportunity 2 will generate $8,000 taxable income in year 0 and $7,000 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 Appendix B. Required: a1. Complete the tables below to calculate NPV. a2. Which opportunity should Firm E choose? b1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the three-year period is 15 percent. b2. Which opportunity should Firm E choose? c1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate is 40 percent in year 0 but only 15 percent in years 1 and 2. c2. Which opportunity should Firm E choose? Complete this question by entering your…
Firm E must choose between two business opportunities. Opportunity 1 will generate an $11,840 deductible loss in year 0, $7,400 taxable income in year 1, and $29,600 taxable income in year 2. Opportunity 2 will generate $8,400 taxable income in year 0 and $7,400 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 Appendix B. Required: a1. Complete the tables below to calculate NPV. a2. Which opportunity should Firm E choose? b1. Complete the tables below to calculate NPV. Assume Firm E's marginal tax rate over the
Firm E must choose between two alternative transactions. Transaction 1 requires a $9,150 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $14,800 cash outlay that would be a deductible expense. Required: a. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent. b. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 45 percent.
5) Yawl Inc. must choose between two business opportunities. Opportunity 1 will generate RO40,000 before-tax cash flow in years 0, 1, and 2, with a RO7,000 annual tax cost. Opportunity 2 will also generate RO40,000 before-tax cash flow in years 0, 1, and 2. However, the tax cost will be RO15,000 in year 0, RO2,500 in year 1, and RO2,500 in year 2. Which opportunity should Yawl choose if it uses a 6% discount rate to compute NPV?
Mr. and Mrs. Rath invested in a business that will generate the following cash flows over a three-year period. Use Appendix A. Taxable revenue Deductible expenses If the Raths' marginal tax rate over the three year period is 25% and they use a 5% discount rate, compute the NPV of the transaction. O $48,750 O $45,589 O $65,000 None of the above. Year O 25,000 (15,000) Year 1 35,000 (15,000) Year 2 55,000 (20,000)
Homework i Firm E must choose between two alternative transactions. Transaction 1 requires a $13,250 cash outlay that would be nondeductible in the computation of taxable income. Transaction 2 requires a $18,700 cash outlay that would be a deductible expense. Required: a. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent. b. Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 45 percent. Complete this question by entering your answers in the tabs below. Required A Required B After-tax cost Determine the after-tax cost for each transaction. Assume Firm E's marginal tax rate is 25 percent. Note: Negative amounts should be indicated by a minus sign. @ Transaction 1 20 #C Transaction 2 % Saved & 7 2 * O H
Corporation VB was formed in 2019. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2019, or wait until 2020. However, if it waits the cost of the expenditure will increase to $525,000. Before considering this expenditure, VB has the following projected pre-tax cash flows and taxable income for 2019, 2020, and 2021. Use Appendix A. Taxable income and pre- tax cashflow a. Using a 5 percent discount rate, compute the NPV of VB's after-tax cash flows if the expenditure is in 2019. b. Using a 5 percent discount rate, compute the NPV of VB's after-tax cash flows if the expenditure is in 2020. c. Based on your calculations, when should VB make this expenditure? Complete this question by entering your answers in the tabs below. 2019 2020 2021 $ 120,000 $ 400,000 $ 700,000 Req A NPV Req B Req C Using a 5 percent discount rate, compute the NPV of VB's after-tax cashflows if the expenditure is in 2019. (Round…
Cash of $12,000 will be received in year 6. Assuming an opportunity cost of capital of 7.2%, which of the following is true? А. The future value is $18,212 В. The present value is $7,996 С. The present value is $7,907 D. Provide data for tax purposes
Project B cost $5,000 and will generate after-tax net cash inflows of $500 in year one, $1,200 in year two, $2,000 in year three. $2,500 in year four, and $2,000 in year five. What is the NPV using 8% as the discount rate? For further instructions on net present value in Excel, see Appendix C.
Rhodes Corporations financial statements are shown after part f. Suppose the federal-plus-state tax corporate tax is 25%. Answer the following questions. a. What is the net operating profit after taxes (NOPAT) for 2020? b. What are the amounts of net operating working capital for both years? c. What are the amounts of total net operating capital for both years? d. What is the free cash flow for 2020? e. What is the ROIC for 2020? f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
Company N will receive $55,000 of taxable revenue from a client. Use Appendix A and Appendix B. Required: Compute the NPV of the $55,000 assuming that Company N will receive $27,500 now (year 0) and $27,500 in year 1. The company’s marginal tax rate is 30 percent, and it uses a 6 percent discount rate. Compute the NPV of the $55,000 assuming that Company N will receive $27,500 in year 1 and $27,500 in year 2. The company’s marginal tax rate is 40 percent, and it uses a 4 percent discount rate. Compute the NPV of the $55,000 assuming that Company N will receive $11,000 now (year 0) and $11,000 in years 1, 2, 3, and 4. The company’s marginal tax rate is 10 percent, and it uses a 9 percent discount rate.
A company earns before-tax profit of 200 000. It must pay 1) 10% of its after-tax profits to Natural Conservation Fund (N) ; 2) State tax (S) of 10% (after N); 3) Federal tax (F) of 20% (after S and N). Write the system of equatios to find N,S,F and determine If it is consistent.

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