Mr Basel Made an Investment That Will Generate the Following

question 26

Multiple Choice

Mr. Basel made an investment that will generate the following cash flows over a three-year period. $\begin{array}{lccc} & \text { Year } 0 & \text { Year } 1 & \text { Year } 2 \\\text { Taxable revenue } & 16,000 & 23,000 & 33,000 \\\text { Deductible expenses } & (5,000) & (6,000) & (7,500) \\\text { Nondeductible expenses } & (1,200) & (2,000) &(4,300) \end{array}$ If Mr. Basel's marginal tax rate over the three-year period is 20% and he uses a 6% discount rate, compute the NPV of the transaction using the appropriate present value tables in Appendix A (round the final answer to the nearest whole dollar) .

• A) $30,028
• B) $33,557
• C) $39,781
• D) None of these choices are correct.

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Definitions:

Federal Regulation

The body of law created by the federal government of a country to govern activities, enforced by executive agencies and interpreted by courts.

Sales Solicitations

Activities or efforts aimed at inducing potential customers to buy a service or a product.

Maturity Risk Premium

The additional return demanded by investors for holding longer-term securities, compensating for the higher risk of price fluctuations over time.

Volatility

A statistical measure of the dispersion of returns for a given security or market index, often associated with the level of risk.