Jason is setting up a recording studio which will have an annual revenue of $70,000 and annual cost of $40,000. The studio will require an initial investment of $10,000. What is the net present value after two years of recording? Jason's discount rate is 10%, and income tax in Seattle, where he lives, is 40%.

Jason is setting up a recording studio which will have an annual revenue of $70,000 and annual cost of $40,000. The studio will require an initial investment of $10,000. What is the net present value after two years of recording? Jason's discount rate is 10%, and income tax in Seattle, where he lives, is 40%.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Jason is setting up a recording studio which
will have an annual revenue of $70,000 and
annual cost of $40,000. The studio will
require an initial investment of $10,000. What
is the net present value after two years of
recording? Jason's discount rate is 10%, and
income tax in Seattle, where he lives, is 40%.
In the investment year, depreciation on all
items is 20%, then 50% the following year,
and 30% in the next year, which is the end of
the schedule.
A. $24,800
B. $34,400
C. $42,100
D. $57,700

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