Question

Firm Q is about to engage in a transaction with the following cash flows over a three-year period. Use Appendix A and Appendix B. Taxable revenue Deductible expenses Nondeductible expenses Year0 $14,400 (4,700) (635) Year 1 $16,400 (6,800) (2,100) Year 2 $ 30,900 (11,450) 0 If the firm's marginal tax rate over the three-year period is 30 percent and its discount rate is 6 percent, compute the NPV of the transaction. (Expenses and cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places and your intermediate calculations to the nearest whole dollar amount.) Year 0 Year 1 Year 2 Revenue Expenses Tax cost Net cash flow Discount factor Present value NPV

Answer 1

	Year 0	Year 1	Year 2
Revenue	$         14,400	$         16,400	$           30,900
Expenses	$          -5,335	$          -8,900	$         -11,450
Tax Cost	$          -2,910	$          -2,880	$           -5,835
Net Cash Flow	$           6,155	$           4,620	$           13,615
Discount Factor	0.943	0.89	0.84
Present Value	$     5,804.17	$     4,111.80	$     11,436.60
NPV	$   21,352.57
Working Note:
Calculation Of Tax Expenses
	Year 0	Year 1	Year 2
Taxable Revenue	$         14,400	$         16,400	$           30,900
Less:
Deductible Expenses	$          -4,700	$          -6,800	$         -11,450
Taxable Income	$           9,700	$           9,600	$           19,450
Tax Expenses	$           2,910	$           2,880	$             5,835