Acme IncIs Planning a Transaction That Requires a $100,000 Deductible Cash

question 88

Multiple Choice

Acme Inc.is planning a transaction that requires a $100,000 deductible cash expenditure.The transaction is structured so that Acme will pay the cash and report the deduction this year (year 0) .Use Appendix A of your textbook provided to Compute the increase in the NPV of the transaction if it can be restructured so that Acme will report the deduction this year,but pay the cash three years later (year 3) .Acme's marginal tax rate is 21%,and it uses a 7% discount rate to compute NPV.

• A)$15,928
• B)$18,400
• C)$21,516
• D)None of the above

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Definitions:

Per Unit Tax

A tax that is levied on a per unit basis, typically imposed on specific goods or services.

Price Increase

A rise in the cost of goods or services.

Tax Revenue

The money collected by governments through the process of taxation.

Supply Curve

The supply curve is a graphical representation showing the relationship between the price of a good and the quantity of the good that producers are willing to supply.