Tate Company is considering a proposal to acquire new equipment for its manufacturing division. The equipment will cost \($192,000,\) be useful for four years, and have a \($12,000\) salvage value. Tate expects annual savings in cash operating expenses (before taxes) of 

\($68,000.\) For tax purposes, the annual depreciation deduction will be \($64,000,\) \($86,000,\) \($28,000,\) and \($14,000,\) respectively, for the four years (the salvage value is ignored on the tax return. The income tax rate is 40%. Tate establishes a cutoff rate for a net present value analysis at the company’s weighted average cost of capital plus | percentage point. Tate’s capital is provided in the following proportions: debt, 60%; common stock, 20%; and retained earnings, 20%. The cost rates for these capital sources are debt, 10%; common stock, 12%; and retained earnings, 13%.

Required

a. Compute Tate’s (1) weighted average cost of capital and (2) cutoff rate.

b. Using Tate’s cutoff rate, compute the net present value of this capital expenditure proposal. Under net present value analysis, should Tate accept the proposal? (Round amounts to the nearest