Firm X has the opportunity to invest $288,000 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
Year 0
Year 1
Year 2
Year 3
$(288,000)
$ 57,800
$57,800 $ 57,800
(34,680)
(8,670)
(8,670)
288,000
(288,000) $ 23,120 $49,130 $337,130
Firm X uses an 8 percent discount rate, and its marginal tax rate over the life of the venture will be 35 percent.
a-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible.
a-2. Should firm X make the investment?
b-1. Complete the below table to calculate NPV. Assume that the revenues are taxable income, but the expenses are nondeductible.
b-2. Should firm X make the investment?
Complete this question by entering your answers in the tabs below.
Req A1
Req A2
Req B1
Req B2
Complete the below table to calculate NPV. Assume that the revenues are taxable income, and the expenses are deductible.
(Cash outflows and negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, all
other intermediate calculations and final answers to the nearest whole dollar amount.)
Before-tax cash flow
$
Year 0
Year 1
Year 2
Year 3
(288,000)
23,120
49,130
337,130
