Western Company is evaluating a possible \($42,000\) investment in special tools that would increase cash flows from operations for four years. The tools will have no salvage value. The income tax rate is 40%. Western uses a 12% cutoff rate when using present value analysis. Other information regarding the proposal is as follows:

Required

a. What are the annual net after-tax cash inflows from this proposal?

b. Compute the net present value and indicate whether it is positive or negative (round amounts to nearest dollar.

c. Compute the excess present value index. Compute the cash payback period.

e. Compute the average rate of return.

Transcribed Image Text:

Cash inflow from operations (pre-tax) Depreciation on tax return...... -Depreciation in financial statements Net income from investment...... Year 1 Year 2 Year 3 Year 4 $15,000 $20,000 $16,500 $12,000 14,000 10,500 2,700 18,500 10,500 10,500 5,700 3,600 6,500 3,000 10,500 900