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Choices and Investments

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Boise Company has the choice between two investments. Investment 1 will generate a $27,000 deductible loss this year (year 0), $15,000 taxable income in year 1, and $60,000 taxable income in year 2.

Investment 2 will generate $16,000 taxable income in years 0, 1, and 2. Assume that income and loss reflect before-tax cash flow for Boise.

Which opportunity should Boise choose if it has a 35% marginal tax rate and uses a 7% discount rate to compute NPV?

Please show calculation.

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Investment 1
NPV of Post tax cash flows = -27000*(1-35%) +15000*(1-35%)/(1+7%) ...

Solution Summary

This solution discusses choices and investments.