Alpine Inc. is considering the installation of a ski life facility in Hidden Valley, Colorado, which will require an investment of $200,000 for equipment. The equipment will have a 10-year economic life with no expected salvage value, and it will be 7-year property for income tax depreciation purposes. The income tax rate is 40%. The estimated annual revenues and expenses over the life of the project are as follows:

Management expects annual inflation during the 10-year period to be 6%. Inflation will affect both revenues and operating expenses equally; however, the lease payments to the government for use of the ski runs will not be affected because they are fixed by contract.
Required:
Compute the annual inflation-adjusted after-tax cash inflows for the proposed capital expenditure, and compute the amount by which total after-tax cash inflows exceed the initial investment. (Use the MACRS rate provided in Exhibit 22-4 to compute tax depreciation, and round the price level index to three decimal places.)

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Operating Expenses $40,000 50,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 60,000 Lease Payments $20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 9 Year $100,000 120,000 140,000 140,000 140,000 140,000 140,000 140,000 120,000 100,000 10