Problem $10-17$A Applying the net present value approach with and without tax

considerations

Antonio Melton, the chief executive officer of Melton Corporation, has assembled his

top advisers to evaluate an investment opportunity. The advisers expect the company

to pay $$500,000$ cash at the beginning of the investment and the cash inflow for each

of the following four years to be the following. Note that the annual cash inflows

below are net of tax.

Mr$.$ Melton agrees with his advisers that the company should use a desired rate of

return of $7$ percent to compute net present value to evaluate the viability of the

proposed project.

Required

Round your computation to the nearest whole dollar.

a$.$ Compute the net present value of the proposed project. Should Mr$.$ Melton approve

the project?

b$.$ Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out

that the advisers failed to consider that the depreciation on equipment used in this

project will be tax deductible. The depreciation is expected to be $$100,000$ per year

for the four$-$year period. The company's income tax rate is $30$ percent per year. Use

this information to revise the company's expected cash flow from this project.

c$.$ Compute the net present value of the project based on the revised cash flow forecast.

Should Mr$.$ Melton approve the project?