The firm is considering the purchase of a 200,000 computer-based inventory management system. It will be depreciated straight-line to zero over its four-year life. It will be worth 30,000 at the end of that time. Each year the system will save the firm 60,000 before taxes in inventory-related costs. The relevant tax rate is 30%. Because the new setup is more efficient than the existing one, the firm will be able to carry less total inventory and thus free up 45,000 in net working capital.

a) What is the initial capital spending?

b) What are the operating after-tax cash flows in Years 1, 2, 3 and 4?

c) What is the terminal cash flow?