A company is considering the purchase of a capital asset for $135,000. Installation charges needed to make the asset serviceable will total $25,000. The asset will be depreciated over six years using the straight line method and an estimated salvage value (SV6) of $10,000. The asset will be kept in service for six years, after which it will be sold for $30,000. During its useful life, it is estimated that the asset will produce annual revenues of $40,000. Operating and maintenance (O&M) costs are estimated to be $8,000 in the first year. These O&M costs are projected to increase by $1,200 per year each year thereafter. The after-tax MARR is 12% and the effective tax rate is $40,000.

a) Find the after-tax cash flows and the after-tax present worth of the project

c) The before-tax present worth of this asset is -$60,000. By how much would the annual revenues have to increase to make the purchase of this asset justifiable on a before-tax basis?