12-6

Dorothy & George Company is planning to acquire a new machine at a total cost of $33,500. The machines estimated life is 6 years and its estimated salvage value is $800. The company estimates that annual cash savings from using this machine will be $10,100. The companys after-tax cost of capital is 8% and its income tax rate is 40%. The company uses straight-line depreciation (non-MACRS-based). (Use Appendix C, Table 1 and Appendix C, Table 2.) (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round "Payback period" to 2 decimal places and all other answers to the nearest dollar amount.)

Required:

1. What is this investments net after-tax annual cash inflow?

2. Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the payback period in years?

3. Assume that the net after-tax annual cash inflow of this investment is $5,000; what is the net present value (NPV) of this investment?

4. What are the minimum net after-tax annual cost savings that make the proposed investment acceptable (i.e., the dollar cost savings that would yield an NPV of $0)?