Carolina Company is evaluating a possible \($150,000\) investment in equipment that would increase cash flows from operations for four years. The equipment will have no salvage value. The income tax rate is 30%. Carolina uses a 15% hurdle rate when using net present value analysis. Other information regarding the proposal is as follows:

Required

a. What are the annual net after-tax cash inflows from this proposal?

b. Compute the net present value and indicate whether it is positive or negative (round amounts to nearest dollar).

c. Compute the cash payback period.

d. Compute the average rate of return.

Transcribed Image Text:

Cash inflow from operations (pre-tax) Depreciation on tax return....... Depreciation in financial statements. Net income from investment. 15%.. PV Factor Year 1 Year 2 Year 3 Year 4 $60,000 $87,000 $42,000 $40,000 50,000 67,000 22,000 11,000 37,500 37.500 37,500 37,500 15,750 34,650 3.150 1,750 0.86957 0.75614 0.65752 0.57175