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Determine the annual after-tax cash flows

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Question: Western Corporation is considering the acquisition of a new machine that costs $350,000. The machine is expected to have a four-year service life and will produce annual savings in cash operating costs of $100,000. Western uses straight-line depreciation, is subject to a 30% income tax rate, has an after-tax hurdle rate of 12%, and rounds calculations to the nearest dollar.

Required: A. Determine the annual after-tax cash flows that result from acquisition of the machine.

B. Assuming that your answer in requirement "A" totaled $110,410, calculate the machine's:

1. Net present value. Is the machine an attractive investment? Why?

2. Internal rate of return. Is the machine an attractive investment? Why?

Reference no: EM132748088

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