Consider the following financial information about a retooling project at a computer manufacturing company:

• The project costs $2 million and has a five‐year service life.
• The project can be classified as a seven‐year property under the MACRS rule.
• At the end of the fifth year, any assets held for the project will be sold. The expected salvage value will be about 10% of the initial project cost.
• The firm will finance 40% of the project money from an outside financial institution at an interest rate of 10%. The firm is required to repay the loan with five equal annual payments.
• The firm’s incremental (marginal) tax rate on this investment is 35%.
• The firm’s MARR is 18%.

Use this financial information to complete the following tasks:
(a) Determine the after‐tax cash flows.
(b) Compute the annual equivalent cost for this project.