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I have tried to figure out this question for the last 2 days. It is question number 11. Can anyone help me?


3. Use a 10 percent discount rate to compute the NPV of each of the following series of cash

 

receipts and payments.

 

a) $6,200 received now (year 0), $1,890 paid in year 3, and $4,000 paid in year five.

 

b) $10,000 paid now (year 0), $12,690 paid in year 2, and $31,000 received in year 8.

 

c) $20,000 received now (year 0 ), $13,500 paid in year 5, and $7,500 paid in year 10.

 


 

5. Taxpayer Y, who has a 30 percent marginal tax rate, invested $65,000 in a bond that pays 8

 

percent annual interest. Compute Y?s annual net cash flow from this investment assuming that:

 

a) The interest is tax-exempt income.

 

b) The interest is taxable income.

 


 

11. Investor W has the opportunity to invest $500,000 in a new venture. The projected cash

 

flows from the venture are as follows.

 

Year 0

 

Initial Investment

 


 

Year 1

 


 

Year 2

 


 

Year 3

 


 

Year

 


 

$(500,000)

 


 

Taxable revenue

 


 

$62,500

 


 

$57,500

 


 

Deductible expenses

 


 

(10,000)

 


 

(10,000)

 


 

(12,000)

 


 

(12,000)

 


 

Return of investment

 


 

________

 


 

________

 


 

________

 


 

500,000

 


 

$52,500

 


 

$47,500

 


 

$32,500

 


 

Before-tax net cash flow

 


 

$(500,000)

 


 

$47,500

 


 

$42,500

 


 

$530,500

 


 

Investor W uses a 7 percent discount rate to compute NPV. Determine if she should make this

 

investment assuming that:

 


 

a) Her marginal tax rate over the life of the investment is 15 percent.

 

b) Her marginal tax rate over the life of the investment is 20 percent.

 

c) Her marginal tax rate in years 1 and 2 is 10 percent and in years 3 and 4 is 25 percent.

 


 

 


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