Preparation for the Exam 2 - Fundamentals of Tax Planning...

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Fundamentals of Tax Planning
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Taxes as Transaction Costs The Uncertainty of Tax Consequences Transactional Markets Private Market Transactions Public Market Transactions The Arm's-Length Presumption Fictitious Markets: Related Party Transactions
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Example of NPV: Compute the net present value of the following cash flow. If a payment of $89,000 to be received at the end of six years. The discount rate is 12%.
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Year 2 Year 3 Year 4 Initial Investment (200,000) Revenues 40,000 40,000 40,000 Expenses (25,000) (7,000) (7000) Return of investment 200,000 Before tax net CF (200,000) 15,000 33,000 233,000 Based on the riskiness of the business venture, Firm X decides to use an 8 percent discount rate to compute net present value. The firm's marginal tax rate over the life of the venture will be 35 percent. Determine if Firm X should make the investment, assuming: a. The revenues from the venture are taxable income and the expenses are deductible. b. The revenues from the venture are taxable
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Preparation for the Exam 2 - Fundamentals of Tax Planning...

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