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What is the after-tax cash flow for projects

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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 $700 000 to install and $130 000 to maintain annually. The second costs $1 000 000 to install and $70 000 to maintain annually. Each has a 10-year income tax life and a 10-year useful life. LODH's discount rate is 11 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 11% for 10 years, PVIFA (11%,10), is 5.889.

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Required:

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

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

Reference no: EM132766790

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