Carson Corporation has the following information about the purchase of a new piece of equipment:

Cash revenues less cash expenses $210,000 per year

Cost of equipment $640,000

Salvage value at the end of the 7^th year $80,000

Increase in working capital requirements $150,000

Tax rate 35 percent

Life 7 years

The cost of capital is 12 percent.

Required:

Calculate the following assuming that depreciation expense is $140,000, $120,000, $100,000, $80,000, $60,000, $40,000 and $20,000 for years 1 through 7, respectively:

i. Calculate the after-tax cash flows for each of the seven years.

ii. Calculate the after-tax payback period.

iii. Calculate the net present value (NPV).

iv. Calculate the internal rate of return (IRR).