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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?

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