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What is the after-tax cash flow for each year

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Question - LODH Company, must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $400 000 to install and $80 000 to maintain annually. The second costs $600 000 to install and $40 000 to maintain annually. Each has a 10-year income tax life and a 10-year useful life. LODH's discount rate is 12 per cent, its marginal tax rate is 30 per cent and it uses straight-line depreciation.

Present value interest factor of an (ordinary) annuity of $1 per period at 12% for 5 years, PVIFA (12%, 10), is 5.650 and for 15 years.

Required -

(a) What is the after-tax cash flow for each year?

(b) Which system should be installed using NPV DCF method?

Reference no: EM132523266

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