Flows = 7000 - .27(7000) = 5110
You have 9 annual flows of $5110, rate of 13%; calculate PV, then compare to $30,000
I am not sure where to go with this problem. It seems like it should be easy, but I am drawing a blank on where to start. Can anyone help me with some direction for the way to solve for the solution provided at the end of the question?
You have the opportunity to invest $30,000 in a project that will generate a pretax return of $7,000 annually for the next nine years. You are in the 27% tax bracket, and your after-tax required rate of return is 13%. Should you make the investment?
Net Present Value = −$3777.24, no