Forester Fashions is considering the purchase of computerized clothes-designing software. The software is expected to cost $320,000, have a useful life of 5 years, and have no salvage value at the end of its useful life. Assume that tax regulations permit the following depreciation patterns for this software:

Year Percent Deductible

1 .........20

2 .........32

3 .........19

4 .........15

5 .........14

The company’s tax rate is 35 percent, and its cost of capital is 8 percent. The software is expected to generate the following cash savings and cash expenses:

a. Prepare a time line presenting the after-tax operating cash flows.
b. Determine the following on an after-tax basis: payback period, net present value, profitability index, and internal rate ofreturn.

Year Cash Savings Cash Expenses $122,000 134,000 44,000 120,000 96,000 $18,000 16,000 26,000 18,000 10,000