Under progressive income tax, insurance reduces tax
Example: A company has the following income stream: 40, 45, 50, 55, 60, 65
It suffers a loss of 45 every three years
It can buy an actuarially fair insurance for 15
Assume a tax schedule: income to 30@20% and income above 30@35%
Calculate the income streams
Assume a zero discount rate: Calculate NPV