Question: 3 . A computer system can be purchased for $ 9 0 , 0 0 0 with an additional $ 1 0 , 0 0

3. A computer system can be purchased for $90,000 with an additional $10,000 required for installation. It is expected to last for five years, with a $20,000 salvage value at that time. It will be depreciated for income tax purposes using the straight-line method. The net value added (revenues less expenses) that can be attributed to the machine is expected to be $25,000 each year. The company will have to borrow $25,000 of the capital needed, and plans to pay the loan back over 3 years using equal annual payments. The loan interest rate is 18% compounded annually. An effective income tax rate of 21% is used by the company and the after-tax MARR is 15% per year. What is the after-tax cash flow for each year? What is the after-tax net present value of this investment?

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