Homework Answers
| Year 0 | Year 1 | Year 2 | ||
| Taxable revenue | $16,000.00 | $23,000.00 | $33,000.00 | |
| Less: Deductible expense | $5,000.00 | $6,000.00 | $7,500.00 | |
| Taxable income | $11,000.00 | $17,000.00 | $25,500.00 | |
| Tax @ 20% | $2,200.00 | $3,400.00 | $5,100.00 | |
| Cash flow before non-deductible expense | $8,800.00 | $13,600.00 | $20,400.00 | |
| Less: Non-Deductible expense | $1,200.00 | $2,000.00 | $4,300.00 | |
| Net cash flow | $7,600.00 | $11,600.00 | $16,100.00 | |
| Discount factor @ 6% | $1.000 | $0.943 | $0.890 | |
| Present value | $7,600.00 | $10,938.80 | $14,329.00 | |
| Net present value | $32,868 | |||
| Thus, net present value of transaction is $32,868 | ||||
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