Assume Critical Mass LLC is evaluating whether it should invest $2,500,000 in renovations to the Phoenix Mill building. The project would increase cash flows from operations for 5 years. The investment will have no salvage value. Critical Mass uses an 8% hurdle rate. Other information is given below.

	Year 1	Year 2	Year 3	Year 4	Year 5
Cash inflow from operations (pre-tax)	$ 400,000	$ 400,000	$ 850,000	$1,050,000	$1,100,000
Depreciation on tax return	250,000	250,000	300,000	300,000	300,000
Depreciation on financial statements	200,000	200,000	200,000	200,000	200,000
Net income from investment	200,000	200,000	650,000	850,000	900,000
PV Factor using 8%

Requirement 1: Input the PV Factors in the above schedule using 8% for years 1-5. These factors can be obtained from the present value tables in the text. (5 points).

Requirement 2: Compute the annual net after-tax cash inflows. We will use the alternative computations described on page 450 where we subtract the cash income tax payments from the cash inflows from operations. To start, we need to compute the annual cash income tax payments which are 21% of the cash inflow from operations less the tax return depreciation. Year 1 is done for you. Complete this schedule (5 points)

	Year 1	Year 2	Year 3	Year 4	Year 5
Cash inflow from operations (pre-tax)	$400,000
Depreciation on tax return	(250,000)
Taxable income	150,000
Tax rate	21%
Cash payment for income taxes	$31,500

Make sure to show dollar signs on the first and last number of each column and format your numbers with commas and underlines on all schedules.

Now that we know the cash payment for income taxes, we can compute the after-tax cash flows. Complete the schedule below (5 points)

	Year 1	Year 2	Year 3	Year 4	Year 5
Cash inflow from operations
Cash payment for income taxes
After-tax cash flows