Yawl Inc. must choose between two business opportunities. Opportunity 1 will generate $40,000 before-tax cash flow in years 0, 1 and 2, with a $7,000 annual tax cost. Opportunity 2 will also generate $40,000 before-tax cash flow in years 0, 1 and 2. However, the tax cost will be $15,000 in year 0, $2,500 in year 1 and $2,500 in year 2.
Which opportunity should Yawl choose if it uses a 6% discount rate to compute NPV?
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