Calculate the pay back period after tax cash flows, Cost Accounting

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An investment alternative in a project requires a capital cost of $102 millions completed at time zero. The investment will produce a stream of revenue of $50 millions per year over a 6-year period with operating cost of $20 millions per year. General inflation is 5% and the rate of taxation is 40%. Assume an individual project basis for taxation in which the capital expenditure can be fully depreciated over the duration of the project on a straight-line base

Calculate :

(i) The annual after tax cash flows in a table after taking into account both taxation and inflation effects (in real/ constant dollars):

(ii) The pay back period - based on annual after tax cash flows. You do not need to calculate the PW values.


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