Appendix 2; comprehensive) Fashion Foto is evaluating the purchase of a state-of-the-art desktop publishing system that costs $40,000, has a six-year life, and has no salvage value at the end of its life. The company’s con¬ troller estimates that the system will annually generate $14,000 of cash re¬ ceipts and create $2,000 of cash operating costs. The company’s tax rate is expected to be 30 percent during the life of the asset, and the company uses straight-line depreciation.

a. Determine the annual after-tax cash flows from the project.

b. Determine the after-tax payback period for the project.

C. Determine the after-tax accounting rate of return for the project. (As¬ sume tax and financial accounting depreciation are equal.)

 LO.1