LectureV - Lecture V: Finish Single Investments and Start...

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Lecture V: Finish Single Investments and Start Multiple Investment I. Complicated NPV Formulation A. As some have indicated in class, the investment decision is much more complex than the simple examples covered thus farm. In general, one must consider taxes, inflation, and general economic trends. B. A more complete formulation of the NPV model would be ( 29 ( 29( 29 1 1 11 t t g NP V NCFAT r Tz  + =  + -+  1. NCFAT t is the net cash flow after tax in period t . Typically, the tax code drives a wedge between the gross revenue received and profit retained in the firm. a. In the past marginal tax rates have been as high as 80 percent. Now the highest marginal tax rate is 33 percent. b. Other factors have also distorted the tax effect. For example, investment tax credit in the pre 1986 tax code allowed up to 10 percent of the asset price to be used to directly reduce taxes payable, and the capital gains exclusion reduced to 40 percent the marginal tax rate on capital gains.
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This note was uploaded on 07/15/2011 for the course AEB 6145 taught by Professor Moss during the Spring '11 term at University of Florida.

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LectureV - Lecture V: Finish Single Investments and Start...

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