Firm H has the opportunity to engage in a transaction that will generate $100,000 cash...
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Firm H has the opportunity to engage in a transaction that will generate $100,000 cash flow (and taxable income) in year 0. The firm could restructure the transaction in a way that doesn't change before-tax cash flow but results in no taxable income in year 0, $50,000 taxable income in year 1, and the remaining $50,000 taxable income in year 2. Assume a 6 percent discount rate and a 34 percent marginal tax rate for the first year and in year 2 increases to 42 percent. Use Appendix A and Appendix B.
Prepare a Restructured transaction.
What is the effect on the NPV of the restructured transaction ?
Complete this question by entering your answers in the tabs below. Required ARequired B Prepare a Restructured transaction. (Cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.) Year 0 Year 1 Year 2 Before-tax cash flow Tax cost Net cash flow Discount factor (6%) Present value NPV 100,000 $100,000 $ $100,000 $ (17,000) (17,000) $ 0.943 0.890 (16,031 $ 68,839
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