Net Present Value and Cash Flow

 Essay about Net Present Value and Cash Flow

п»ї8. Yr 0 Year 1 Year 2

Taxable cash flow $9, 90 $10, two hundred fifity $15, three hundred

Marginal tax rate. 35. 30. 30

Tax $2, 730 $3, 075 $4, 590

Revenue $13, 1000 $16, two hundred fifty $23, four hundred

Expenses (4, 250) (8, 000) (8, 100)

Taxes cost (2, 730) (3, 075) (4, 590)

Net cash flow $6, 020 $5, 175 $12, 710

Price cut factor (6%). 943. 890

Present value $6, 020 $4, 880 $9, 532

NPV $20, 432

10. a. Yr 0 Year 1 Year 2 Year several Year some

Before-tax cash flow $(500, 000) $52, 500 $47, 500 $35, 500 $530, 500 Tax price (7, 875) (7, 125) (5, 325) (4, 575) After-tax cashflow 44, 625 40, 375 30, a hundred seventy five 525, 925 Discount element (7%). 935. 873. 816. 763

Present value $(500, 000) $41, 724 35 dollars, 247 $24, 623 $401, 281

NPV $2, 875

Investor Watts should make the investment because NPV is usually positive.

m. Year zero Year 12 months 2 12 months 3 Season 4

Before-tax cash flow $(500, 000) $52, 500 $47, 500 $35, 500 $530, 500 Tax cost (10, 500) (9, 500) (7, 100) (6, 100) After-tax cash flow 40, 000 37, 000 twenty-eight, 400 524, 400 Low cost factor (7%). 935. 873. 816. 763

Present worth $(500, 000) $39, 270 $33, 174 $23, 174 $400, 117

NPV $(4, 265)

Buyer W should never make the purchase because NPV is adverse.

c. 12 months 0 12 months 1 Year two Year a few Year four

Before-tax income $(500, 000) $52, 500 $47, five-hundred $35, 500 $530, five-hundred Tax price (5, 250) (4, 750) (8, 875) (7, 625) After-tax cashflow 47, two hundred fifty 42, 750 26, 625 522, 875 Discount component (7%). 935. 873. 816. 763

Present value $(500, 000) $44, 179 $37, 321 $21, 726 $398, 954

NPV $2, one hundred and eighty

Investor Watts should associated with investment since NPV is positive.

of sixteen. a. Option 1: Season 0 Season 1 Year a couple of

Taxable profits (loss) $(8, 000) $5, 000 $20, 000

Minor tax level. 40. 45. 40

Taxes $(3, 200) $2, 000 $8, 500

Before-tax cashflow $(8, 000) $5, 500 $20, 000

Tax (cost) or financial savings 3, 200(2, 000) (8, 000)

Net cash flow $(4, 800) $3, 000 $12, 000

Lower price factor (12%). 893. 797

Present worth $(4, 800) $2, 679 $9, 564

NPV $7, 443

Prospect 2: Yr 0 Season 1 Year 2

Taxable cash flow $5, 1000 $5, 500 $5, 000

Marginal taxes rate. forty. 40. 40

Tax $2, 000 $2, 000 $2, 000

Before-tax cash flow $5, 000 $5, 000 $5, 000

Duty (cost) or savings (2, 000) (2, 000) (2, 000)

Net cash flow $3, 000 $3, 000 $3, 000

Low cost factor (12%). 893. 797

Present benefit $3, 050 $2, 679 $2, 391

NPV $8, 120

Firm E ought to choose prospect 2 .

b. Opportunity 1: Year 0 Year 12 months 2

Taxable income (loss) $(8, 000) $5, 500 $20, 1000

Marginal tax rate. 12-15. 15. 15

Tax $(1, 200) $750 $3, 1000

Before-tax cash flow $(8, 000) $5, 1000 $20, 1000

Tax (cost) or cost savings 1, 2 hundred (750) (3, 000)

Net cash flow $(6, 800) $4, 250 $17, 000

Price cut factor (12%). 893. 797

Present value $(6, 800) $3, 795 $13, 549

NPV $12, 544

Opportunity 2: Season 0 Year 1 Year two

Taxable profits $5, 000 $5, 500 $5, 000

Marginal duty rate. 12-15. 15. 12-15

Tax $750 $750 $750

Before-tax cashflow $5, 000 $5, 000 $5, 1000

Tax (cost) or savings (750) (750) (750)

Net cash flow $4, 250 $4, 250 $4, 250

Discount factor (12%). 893. 797

Present worth $4, two hundred fifity $3, 795 $3, 387

NPV $11, 432

Firm E will need to choose prospect 2 .

c. Opportunity 1: Year zero Year 1 Year 2

Taxable income (loss) $(8, 000) $5, 500 $20, 500

Marginal duty rate. 40. 15. 15

Tax $(3, 200) $750 $3, 500

Before-tax cashflow $(8, 000) $5, 000 $20, 000

Tax (cost) or personal savings 3, two hundred (750) (3, 000)

Net cash flow $(4, 800) $4, 250 $17, 000

Lower price factor (12%). 893. 797

Present benefit $(4, 800) $3, 795 $13, 549

NPV $12, 544

Prospect 2: 12 months 0 Year 1 Year two

Taxable income $5, 1000 $5, 500 $5, 1000

Marginal tax rate. 45. 15. 12-15

Tax $2, 000 $750 $750

Before-tax cash flow $5, 000 $5, 000 $5, 000

Taxes (cost) or perhaps savings (2, 000) (750) (750)

Net cash flow $3, 000 $4, 250 $4, 250

Price cut factor (12%). 893. 797

Present value $3, 1000 $3, 795 $3, 387

NPV $10, 182

Organization E will need to choose option 1 .

1 . a. (1) Year zero Year 12 months 2

Before-tax salary/income $80, 000 $80, 000 $80, 000

Minor tax rate. 25. forty. 40

Taxes on profits $20, 1000 $32, 000 $32, 1000

After-tax income $60, 000 $48, 000 $48, 000

Discount element (8%). 926. 857

Present value...

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