Mr and Mrs If the Raths' Marginal Tax Rate Over the Three-Year Period

question 75

Multiple Choice

Mr. and Mrs. Rath invested in a business that will generate the following cash flows over a three-year period. $\begin{array}{lccc}&\text { Year0}&\text { Year1}&\text { Year 2}\\ \text { Taxable revenue } & 30,000 & 40,000 & 60,000 \\\text { Deductible expenses } & (15,000) & (15,000) & (20,000\end{array}$
If the Raths' marginal tax rate over the three-year period is 20% and they use a 6% discount rate, compute the NPV of the transaction using the appropriate present value tables in Appendix A.

• A) $59,340
• B) $55,996
• C) $50,413
• D) None of these choices are correct.

Identify the sources and purposes of financial support for international development projects.

Calculate the pre-tax cost of debt.

Compute the after-tax cost of debt for WACC calculations.

Determine the weighted average cost of capital (WACC).

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Definitions:

Notes Receivable

Financial assets representing rights to receive payments of principal and interest from debtors under terms specified in promissory notes.

Interest

The cost of borrowing money or the return on investment for savings and investments, often expressed as a percentage.

Adjusting Entry

An amendment added to the accounting records to accurately reflect the revenues earned and expenses incurred during a period.

Interest Note

A legal document that outlines the terms under which interest will be paid on borrowed funds.