Firm Q is about to engage in a transaction with the followin

Firm Q is about to engage in a transaction with the following cash flows over a three-year period.

	Year 0	Year 1	Year 2
Taxable revenue	$	17,500	$	21,500	$	25,600
Deductible expenses		(4,600)		(8,600)		(12,000)
Nondeductible expenses		(575)		(3,000)		0

Year 0 Year 1 Year 2 Revenue Expenses Tax cost Net cash flow Discount factor Present value NPV

Solution

Year 0

Year 1

Year 2

Revenue

17,500

21,500

25,600

Expenses

5,175

11,600

12,000

Tax Cost

3,870

3,870

4,080

Net Cash Flow

8,455

6,030

9,520

Discount Factor

1.000

0.943

0.890

Present Value

8,455

5,686

8,473

NPV

22,614

	Year 0	Year 1	Year 2
Revenue	17,500	21,500	25,600
Expenses	5,175	11,600	12,000
Tax Cost	3,870	3,870	4,080
Net Cash Flow	8,455	6,030	9,520
Discount Factor	1.000	0.943	0.890
Present Value	8,455	5,686	8,473
NPV	22,614