Question

French Corporation wishes to hire Leslie as a consultant to design a comprehensive staff training program. The project is expected to take one year, and the parties have agreed to a tentative price of $60,000. Leslie has requested payment of one-half of the fee now, with the remainder paid in one year when the project is complete. Use Appendix A and Appendix B. (Cash outflows amounts should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amount.)if Leslie expects her marginal tax rate to be 35 percent in both years, calculate the after-tax net present value of this contract to Leslie, using a 6 percent discount rate.

Answer 1

Answer:

PV of the contract 38,490.57

Explanation:

We will calculate the present value of the project.

Leslie receive 30,000 today, so that is already at present value.

Once the project is finish she will receive 30,000 and pay the income taxes for the whole project

in one she will:

receive 30,000

pay 60,000 x 35% = 21,000 income tax

net 9,000

In one year, after taxes she will get 9,000 we will use the present value of a lump sum to calculate the present value of this:

$\frac{cashflow}{(1 + rate)^{time} } = PV$

cashflow 9,000

time 1 year

rate 6% = 0.06

$\frac{9000}{(1 + 0.06)^{1} } = PV$

PV  $8,490.5660

Now, we add both values:

30,000 + 8,490.57 = 38,490.57 this will be the present value of the contract