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Essay / Research Paper Abstract
This 3 page paper compares two scenarios where a company can be set up with the same level of income but under different tax regimes. This paper calculates the net income and then the net present value of each option. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TENPV002.rtf
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Unformatted sample text from the term paper:
five years. There are two options of how this could be set up, each of which has different tax implication. The potential owners wants to make the decision based on
which of the options will give the highest net present value at the end of the five years. This calculation needs to take place in two stages for each question.
Firstly, we need to calculate the net level of income that will be received in years five. Then we need to discount this to give the net present value.
Part A For this we have an income each year. We cannot carry back losses as this is a year 1 situation. Therefore we have carried forward the losses and
counted then within years three and four. This reduces the profit level and as such the level of the tax paid. Tax is assumed at 40%. When the money is
withdrawn in year five there is no additional tax so the total that needs to be discounted in shown below. Income Carried forward losses Income net of losses Tax
rate (%) Tax payable Net income Year 1 -75,000 0 -75,000 40 0 Year 2 -25,000 0 -25,000 40 0 Year 3 30,000 30,000 0 40 0
Year 4 90,000 70,000 20,000 40 8000 12,000 Year 5 160,000 0 160,000 40 64000 96,000 Total 108,000 Now we need to calculate the
net present value. This ids a simple calculation one we have calculated the discount factor. This is given as 7% so to calculate this we take year one, which is
1 and divide this by 1.07, the result is then used to calculate year twos discount factor, by dividing it by 1.07 and so forth. This will give us the
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