A company anticipates a tax-deductible cash expense of $10,000 in year 2 of a project.The company's tax rate is 30%,and its discount rate is 8%.What is the approximate present value of this future cash outflow? Do not round your intermediate calculations and round the final answer to the nearest whole dollar.)

Question

Quizplus · Accepted Answer

The present value of the future cash outflow can be calculated by first determining the after-tax cost of the expense, then discounting it back to its present value. The after-tax cost is $10,000 * (1 - 0.30) = $7,000. To find the present value, use the formula PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of years. Thus, PV = $7,000 / (1 + 0.08)^2 ≈ $6,001.

A Company Anticipates a Tax-Deductible Cash Expense of $10,000 in Year