$4$

$\frac{1\mathrm{.}5}{6}$

points awarded

Scored

Exercise $12-42($Static$)$ Straightforward Capital Budgeting with Taxes $($Non$-$MACRS$-$Based Depreciation$)$; Sensitivity Analysis $[$LO $12-4,12-5,12-6]$

Dorothy & George Company is planning to acquire a new machine at a total cost of $$30,600.$ The machine's estimated life is $6$ years and its estimated salvage value is $$600.$ The company estimates that annual cash savings from using this machine will be $$8,000.$ The company's after$-$tax cost of capital is $8\%,$ and its income tax rate is $40\%.$ The company uses straight$-$line depreciation $($non$-$MACRSbased$).($Use Appendix C$,$ Table $1$ and Appendix C$,$ Table $2.)($Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round "Payback period" to $2$ decimal places and all other answers to the nearest dollar amount.$)$

Required:

What is this investment's net after$-$tax annual cash inflow?

Assume that the net after$-$tax annual cash inflow of this investment is $$5,000.$ what is the payback period in years?

Assume that the net after$-$tax annual cash inflow of this investment is $$5,000.$ what is the net present value $($NPV$)$ of this investment?

What are the minimum net after$-$tax annual cost savings that make the proposed investment acceptable $($i$.$e$.,$ the dollar cost savings that would yield an NPV of $$0)?$

$\backslash$table$[[1.,$Net after$-$tax annual cash inflow,$$,4,800,.],[2.,$Payback period,,$6\mathrm{.}120,$Year$],[3.,$Net present value,$$,1,735,],[4.,$Minimum net after$-$tax annual cost savings,$$,7\mathrm{.}438,]]$