Citran Company will earn $150,000 revenue as payment for a three-year consulting engagement. Compute the NPV of the revenue using Appendix A if Citran will received $35,000 cash immediately (year 0), $35,000 cash next year (year 1) and $80,000 cash the following year (year 2). Citran will report the revenue as taxable income in the year received. Its marginal tax rate is 30%, and it uses an 8% discount rate.
What will be an ideal response?
The NPV is $95,179 ($24,500 after-tax cash flow in year 0 + $22,687 discounted after-tax cash flow in year 1 [$24,500 × 0.926] + $47,992 discounted after-tax cash flow in year 2 [$56,000 × 0.857]).
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