A company anticipates a tax-deductible cash expense of $60,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 14%.What is the approximate present value of this future cash outflow?

Question

Quizplus · Accepted Answer

The present value of the tax-deductible cash expense can be calculated using the formula:

Present Value = Future Value / (1 + Discount Rate)^(Number of Years)

In this case, the future value is $60,000, the discount rate is 14%, and the expense occurs in year 2. So, we have:

Present Value = $60,000 / (1 + 0.14)^2 
Present Value = $32,298

Therefore, the approximate present value of this future cash outflow is $32,298. Option B is the correct answer.

A Company Anticipates a Tax-Deductible Cash Expense of $60,000 in Year