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M https// now/connect.htmTisRege true&returnud.https;%3A%2PX ck my work mode: This shows what is correct or incorrect for the work you have c completion Return to questia French Corporation wishes to hire Lesle 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 $75,000. Leslie has requested payment of one-hailf of the fee now, with the remainder paid in one year when the project is complete. Use Appendix A and Appendix B. a. If Leslie expects her marginal tax rate to be 30 percent in both years, calculate the after-tax net present value of this contract to Leslie, using a 6 percent discount rate b. French Corporation expects its marginal tax rate to be 20 percent this year and 30 percent next year. Calculate the net present value of French's after-tax cost to enter into this contract using a 6 percent discount rate c-1. Given that French expects its tax rate to increase next year, it would prefer to pay more of the cost of the contract when the project is complete. Consider an alternative proposal under which French pays Leslie $10,000 this year, and $68,900 in one year when the contract is complete. Calculate the after-tax benefit of this counter proposal to Leslie and the after-tax cost to French. c-2. Are both parties better off under this alternative than under the original plan? Answer is not complete. Complete this question by entering your answers in the tabs below. Req A Req B Req CL Rea c2 If Lesle expects her marginal tax rate to be 30 percent in both years, calculate the after-tax net present value of this contra to Lesie, using a 6 percent discount rate. (Cash outflows amounts should be indicated by a minus sign. Round discount fact (s) to 3 decimal places, intermediate calculations and final answers to the nearest whole dollar amou nt.) O Type here to searchExplanation / Answer
.a . After tax recept now(Year 0)=(75000/2)*(1-tax rate)=37500*(1-0.3)= $ 26,250
After tax recept in Year 1=(75000/2)*(1-tax rate)=37500*(1-0.3)= $ 26,250
Present Value of recept now= $ 26,250
Present value of receipt after one year(at 6% discount rate)=(26250*0.943)= $ 24,754
After tax net Present value of the contract to Leslie=(26250+24754)= $ 51,004
After tax net Present value of the contract to Leslie
$ 51,004
.b. Cost to French corporation:
Current years cost=37500*(1-Tax rate)=37500*(1-0.2)= $ 30,000
Next Years Cost=37500*(1-0.3)=$26250
Present value of $26250 at 6% discount rate=)=(26250*0.943)= $ 24,754
Net Present value of after Tax Cost=(30000+24754)=$54754
Net Present value of after Tax Cost to french Corporation
$ 54,754
.c-1. After Tax Contract Value to leslie under new payment term:
Receipt now=$10000*(1-tax rate)=10000*(1-0.3)=$7000
After tax Receipt after one year=68900*(1-0.3)= $ 48,230
Present value of receipt =48230*0.943= $ 45,481
After tax Present value of contract=7000+45481= $ 52,481
After tax benefit to Lesli=(52481-51004)= $ 1,477
AFTER TAX COST TO FRENCH:
Cost this year=10000*(1-0.2)=$8000
Next years cost=68900*(1-0.3)=$48230
Present value of cost=48230*0.943= $ 45,481
Present value of after tax cost to French=(8000+45481)=$53481
Reduction of cost to French by(54754-53481)= $ 1,273
.c-2 yeas both parties are better off under the alternative plan
After tax net Present value of the contract to Leslie
$ 51,004
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