Chapter 3, Problem 9AP

Company N will receive $100,000 of taxable revenue from a client. Compute the NPV of the $100,000 in each of the following cases:

1. a. Company N will receive $50,000 now (year 0) and $50,000 in year 1. The company’s marginal tax rate is 30 percent, and it uses a 6 percent discount rate.
2. b. Company N will receive $50,000 in year 1 and $50,000 in year 2. The company’s marginal tax rate is 40 percent, and it uses a 4 percent discount rate.
3. c. Company N will receive $20,000 now (year 0) and $20,000 in years 1, 2, 3, and 4. The company’s marginal tax rate is 10 percent, and it uses a 9 percent discount rate.