Evaluation of tax incentives A taxicab costing $12,000 has a 3-year useful life and a salvage value of $3,000. Expected annual operating revenues and expenses are $55,000 and $47,000 respectively, not including MACRS depreciation expense which is $3,000, $4,560, and $4,440 respectively for the three years. The vehicle will be put into service at the beginning of 1992. The company's cost of capital is 20 percent and its effective income tax rate is 35 percent.

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REQUIRED Using after-tax cash flows based on the modified accelerated cost recovery system, find the net present value and profitability index of the investment and decide if the investment should be made.