A company anticipates a taxable cash expense of $50,000 in year 2 of a project. The company's tax rate is 30% and its discount rate is 14%. The present value of this future cash flow is closest to:

Question

Quizplus · Accepted Answer

The present value (PV) of the taxable cash expense can be calculated using the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.

In this case, FV = $50,000, r = 14%, and n = 2. However, the taxable cash expense is subject to a tax rate of 30%, so the actual cash outflow for the company will be $50,000 * (1 - 0.3) = $35,000.

Therefore, the PV of the taxable cash expense is $35,000 / (1 + 0.14)^2 = $26,931.

The closest answer is A) $(26,931).

A Company Anticipates a Taxable Cash Expense of $50,000 in Year