Kempf Corporation faces a marginal tax rate of 35 percent. One project that is currently under evaluation has a cash flow in the fourth year of its life that has a present value of $10,000 (after-tax). Kempf Corporation assumes that all cash flows occur at the end of the year and the company uses 11 percent as its discount rate. What is the pre-tax amount of the cash flow in year 4? (Round to the
nearest dollar.) Present value tables or a financial calculator are required.
a. $15,181
b. $23,356
c. $ 9,868
d. $43,375
B
$10,000 /0.65 = $15,384.61
Use PV Table for 4 years, 11%. Constant = 0.6587
$15,384.61 / 0.6587 = $23,356.
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