Firm W, which has a 30 percent marginal tax rate, plans to operate a new business that should generate $58,000 annual cash flow andordinary income for three years (years 0, 1, and 2). Alternatively, Firm W could form a new taxable entity (Entity N) to operate thebusiness. Entity N would pay tax on the three-year income stream at a 20 percent rate. The nondeductible cost of forming Entity Nwould be $6,800. Firm W uses a 5 percent discount rate. Use Appendix A and Appendix B.Required:a. Complete the below tables to calculate NPV.b. Should it operate the new business directly or form Entity N to operate the business?Answer is not complete.Complete this question by entering your answers in the tabs below. > Answer Is not complete.Complete this question by entering your answers in the tabs below.Required ARequired BComplete the below tables to calculate NPV.Note: Cash outflows should be indicated by a minus sign. Round discount factors to 3 decimal places. Round intermediatecalculations and final answers to the nearest whole dollar amount.Year 0Year 1Year 2Business operated by Firm W:After-tax cash flow at 30% tax rate$2,040 $ 17,400 $58,000Discount factor (5%)55,238.100 X52,416.270Present value$040$$961,142,9403,040,143,660NPVBusiness operated by Entity N:After-tax cash flow at 20% tax rateCost of forming Entity NNet cash flowDiscount factor (5%)Present valueNPV8$0$ 85,671 X$0$0Required B

The net present value is a useful tool for determining the value of an investment. It looks at the…

Answered: a. Complete the below tables to…

a. Complete the below tables to calculate NPV. b. Should it operate the new business directly or form Entity N to operate the business?

SWFT Comprehensive Vol 2020

43rd Edition

ISBN:9780357391723

Author:Maloney

Publisher:Maloney

Chapter18: Corporations: Organization And Capital Structure

Section: Chapter Questions

Problem 38P

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