Question

Note: Show all of your work to arrive at a final result. Use periodic interest factors in the calculation of NPV and IRR 1. At the end of a tax year, a company has the following data: Gross receipts (sales) Cost of goods sold $300,000 $50,000 $15,000 Tax depreciation Book depreciation $8,000 Interest on debt $10,000 What is the company's tax liability (tax) and effective tax rate? 2. For the net cash flows given below, determine the following: (a) The net present value if MARR equals 15%. (b) The internal rate of return. (c) The payback period. End of Year 2 w Net Cash Flow -20,000 -20,000 -20,000 -20,000 45,000 20,000 10,000 20,000 20,000 20,000 20,000 10

please answer question number 2

Answer 1

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Answer 2	Amount in $
Calculation of NPV at 15%
Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Net cash flows	(20,000.00)	(20,000.00)	(20,000.00)	(20,000.00)	45,000.00	20,000.00	10,000.00	20,000.00	20,000.00	20,000.00	20,000.00
PV factor at 15%	1.00	0.87	0.76	0.66	0.57	0.50	0.43	0.38	0.33	0.28	0.25
PV of cash flows	(20,000.00)	(17,391.30)	(15,122.87)	(13,150.32)	25,728.90	9,943.53	4,323.28	7,518.74	6,538.04	5,685.25	4,943.69
NPV											$    (983.08)
So NPV is $ 983.08.
Calculation of NPV at 14.63%
Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Net cash flows	(20,000.00)	(20,000.00)	(20,000.00)	(20,000.00)	45,000.00	20,000.00	10,000.00	20,000.00	20,000.00	20,000.00	20,000.00
PV factor at 15%	1.00	0.87	0.76	0.66	0.58	0.51	0.44	0.38	0.34	0.29	0.26
PV of cash flows	(20,000.00)	(17,447.44)	(15,220.66)	(13,278.08)	26,062.70	10,105.05	4,407.68	7,690.28	6,708.78	5,852.55	5,105.60
NPV											$      (13.53)
So IRR is 14.63%.
Payback period
Particulars	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	Year 8	Year 9	Year 10
Net cash flows	(20,000.00)	(20,000.00)	(20,000.00)	(20,000.00)	45,000.00	20,000.00	10,000.00	20,000.00	20,000.00	20,000.00	20,000.00
Total cash outflows		80,000.00
Cash inflows in Year 4		45,000.00
Remaining Balance		35,000.00
Cash inflows in Year 5		20,000.00
Remaining Balance		15,000.00
Cash inflows in Year 6		10,000.00
Remaining Balance		5,000.00
Cash inflows in Year 7		20,000.00
$ 5,000 is 1/4th of $ 20,000 that is its been recovered in the first quarter only i.e. 3 months.
So Payback period is 6 years and 3 months.