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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.

    © BrainMass Inc. brainmass.com June 3, 2020, 11:39 pm ad1c9bdddf
    https://brainmass.com/business/investments-in-securities/choices-and-investments-290332

    Solution Preview

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

    Solution Summary

    This solution discusses choices and investments.

    $2.19

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