Reference no: EM132957341
Weighout Company is evaluating a capital expenditure proposal that will require an initial cash investment of $100,000. The project will have a 6-year life; however, the property will qualify as 5-year property for income-tax depreciation purposes. The income tax rate is 40%.
The annual cash inflows from the project, before any adjustment for the effects of inflation or income taxes, are expected to be as follows:
Unadjusted Estimate of
Year Cash Inflows
1 $25,000
2 27,000
3 29,000
4 23,000
5 20,000
6 15,000
- The expected salvage value of the property is zero. Cash inflows are expected to increase at the anticipated inflation rate of 4% each year.
Required:
Problem 1: Compute the inflation adjusted after-tax cash inflow from the proposal for each year, and the excess of total net cash inflows over the initial cash outlay. (Use the MACRS depreciation rates provided below to compute tax depreciation, and round the price-level index to three decimal places.)
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