NPV of the transaction
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Mrs. Biggs invested in a business that will generate the following cash flows over a three-year period.
Year 0 Year 1 Year 2
Taxable revenue 30,000 45,000 70,000
Deductible expense (15,000) (15,000) (20,000)
Nondeductible expense(1,000) (4,000) (10,000)
If Mrs. Biggs's marginal tax rate over the three year period is 30% and she uses a 6%discount rate, compute the NPV of the transaction.
A. $61,453
B. $52,771
C. $47,781
D. None of the above
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Solution Summary
The solution explains how to calculate the NPV of the transaction.
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We find the cash flow in each year
Year 1- Income before tax is 30,000-15,000=15,000. Tax paid is 15,000X.3=4,500 and so net income is 10,500. From ...
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