Draconian Measures, Inc., is evaluating two independent projects. The company uses a 13.8 percent discount rate for such projects. Cost and cash flows are shown in the table. What are the NPVs of the two projects? Year Project A Project B 0 $(8,425,375) $(11,368,000) 1 $3,225,997 $2,112,589 2 $1,775,882 $3,787,552 3 $1,375,112 $3,125,650 4 $1,176,558 $4,115,899 5 $1,212,645 $4,556,424 6 $1,582,156 7 $1,365,882 Solution Putting the numbers in an Excel spreadsheet and using the NPV function I get: Project A (587,243.60) Project B 329,855.15.

1. Draft and submit tax memorandums in response to the case. Identify and discuss relevant
authorities including the Internal Revenue Code, Treasury Regulations, cases, and/or Revenue
Rulings. Write clearly and concisely.
Sophie is a professor in business at the University of Hawaii. She went on sabbatical for an
academic year to take courses in Chinese at National Taiwan University in Taipei, Taiwan, to
expand her knowledge of international business and to conduct research. On weekends and
during the three week winter break, Sophie went sight-seeing by herself around the island, but
one time gave a lecture in Tainan, Taiwan. Sophie has documented her expenses and saved her
receipts.
Advise Sylvia as to the deductibility of her foreign travel expenses.
Solution
Tax Implication of Sabbaticals- An individual away from tax home on temporary assignment
will get substantial benefit of deduction for travelling expenses.
The expenses of travelling and other incurred away from home are deductible if following
conditions satisfied.
(‘1) Expenses must be reasonable and necessary for travelling like transportations, fares, food,
lodging incurred while travelling.
(‘2) Expenses incurred while away from home.
(‘3) The expenses must be in the pursuit of business.
The following expenses may be deducted in this purpose.
(‘1) Transportation cost and fares which includes cost of air, rail, bus or taxi.
(‘2) Cost of meals and lodging
(‘3) Laundry charges, cleaning charges and other expenses in similar nature
(‘4) Telephone or telegraph expenses
(‘5) Any other similar expenses
Tax implication if Travel is for Education –
But if a professor in the university, during sabbatical goes away for education purpose to
enhance his skills, then expenses incurred in this course is not deductible if the permission of
university is not taken to study the specific subject during sabbatical.
But if individual is permitted from university to study the specific subject which is necessary to
enhance her knowledge in teaching, then cost of travel expenses is deductible.
Tax implication on vacationing or sight- seeing-
If an individual takes vacation or sight-seeing while on a business trip out of home, then travel

2. expenses must be allocated between the business portion and vacation portion. Vacation portion
expense is treated as personal nature and not deductible. Business portion is treated as business
expenses and deductible.
Cost of transportation is deductible in full.
Facts in the given case- Sophie is profession in business at the University of Hawaii. She went to
Taiwan for a study in international business and research, which will improve her skill in her
teaching. It is assumed that Sophie has taken required permission from university for this study.
Conclusion- As Sophie has documented her expenses, hence expenses incurred for sight-seeing
on weekends and in winter break is not deductible.
Other expenses incurred during the year are treated as business expenses and deductible.