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Royster Company is planning a transaction that will require a $65,000 deductible cash expenditure. The transaction...

Royster Company is planning a transaction that will require a $65,000 deductible cash expenditure. The transaction is structured so that Royster will pay the cash and report the deduction this year (year 0). Compute the increase in the Net Present Value (NPV) of the transaction if it can be restructured so that Royster will report the deduction on this year's tax return (year 0), but pay the cash three years later (year 3). Royster's marginal tax rate is 30% and it uses a 11% discount rate to compute NPV. Use the present value tables from your book.

A.) $19,500

B.) $17,485

C.) $45,500

D.) $28,015

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Answer #1

63 Year | Cash flow | PVIF@11% 64 65 19,500 Present value 1.000 $ 0.901 $ 0.812 $ 0.731 $ 19,500 1 67 2 68 3 $ (65,000) (47,515) 70 71 NPV 72 $ (28,015) 73 Hence, correct option is D.) $28,015

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