Michael Company is considering the purchase of a large press costing $100,000. The estimated cash inflows before considering the effects of inflation and income taxes are considered follow:
YearUnadjusted Cash Inflow
1 ...........................................$15,000
2 ........................................... 20,000
3 ........................................... 25,000
4 ........................................... 25,000
5 ........................................... 25,000
6 ........................................... 25,000
7 ........................................... 25,000
8 ........................................... 20,000
9 ........................................... 15,000
10 ........................................... 10,000
For financial accounting purposes, the press is to be depreciated on a straight-line basis over a period of 10 years. Salvage value at the end of a 10-year life, based on current prices, will be about $2,000. For tax purposes, however, the press will be depreciated under MACRS, using the rates for 7-year property. The company's tax rate is 40%. The annual inflation rate is expected to be 10% for the planning period.
Required:
Compute the inflation-adjusted after-tax cash inflow from the capital expenditure proposed for each year and the excess of total cash inflows over the initial cost of the capital project. (Use the MACRS rates provided in Exhibit 22-4, and round the price-level index to three decimal places.)