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). 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 35%, and it uses a 7% discount rate to compute NPV.

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The Answer of 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). 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 35%, and it uses a 7% discount rate to compute NPV.

Acme Inc Is Planning a Transaction That Requires a $100,000 Deductible