7-20. The Hitech Engineering Company is considering the purchase of a flow measuring device. Its purchase price is $12,000 and another $600 will be spent shipping and installing this device. Use of the device is expected to result in a $8,000 annual increase in revenue, and operating expenses are estimated to be $3,000 per year.

The meter will be used for five years, and then it will be sold for an estimated market value of $3,000. The meter’s MACRS property class is five years.

Determine the after-tax IRR on this investment, if the effective income tax rate (t) is 40%. If after-tax MRR is 10%, should a flow measuring device be purchased, installed and utilized by the company? What is the payback period based on after-tax cash flows? (7.10)