Investor W has the opportunity to invest $615,000 in a new venture. The projected cash flows...

Investor W has the opportunity to invest $615,000 in a new venture. The projected cash flows from the venture are as follows. Use Appendix A and Appendix B.

	Year 0		Year 1		Year 2		Year 3		Year 4
Initial investment	$	(615,000)
Taxable revenue			$	81,500	$	76,500	$	66,500	$	61,500
Deductible expenses				(18,000)		(18,000)		(21,500)		(21,500)
Return of investment										615,000
Before-tax net cash flow	$	(615,000)	$	63,500	$	58,500	$	45,000	$	655,000

Investor W uses a 7 percent discount rate.

a-1. Complete the table below to calculate NPV. Assume her marginal tax rate over the life of the investment is 15 percent.

a-2. Should Investor W make the investment?

b-1. Complete the table below to calculate NPV. Assume her marginal tax rate over the life of the investment is 20 percent.

b-2. Should Investor W make the investment?

c-1. Complete the table below to calculate NPV. Assume her marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent.

c-2. Should Investor W make the investment?

Expert Solution

jeff jeffy answered 11 months ago

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