Assume that the amounts in Problem 4 are before taxes and the tax rate is 30%. As a result, the analysis would differ as follows:

● The after-tax cash cost savings net only 70% of the amounts.

● The after-tax repair is only 70% of the value given.

● The company uses accelerated depreciation to take greater depreciation deductions in the earlier years. The depreciation deductions and the 30% tax savings have already been calculated as follows:

●    The after-tax salvage value is only 70% of the amount.
●    The acquisition cost is not affected by taxes since it is a balance sheet account.

a. Set up the schedule of relevant cash flows below. Remember: Relevant items are those that differ between alternatives and occur in the future. Calculate the NPV in the last column.

b. Calculate the payback period assuming after-tax cash flows.

c. Should the company buy the equipment based on the quantitative analysis?

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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Depreciation Expense $40,000 $64,000 $38,400 $23,040 $23,040 $11,520 Depreciation Tax Savings $12,000 $19,200 $11,520 $6,912 $6,912 $3,456