Eastern Company is evaluating a possible $105,000 investment in special tools that would increase cash flows from operations for three years. The tools will have no salvage value. The income tax rate is 30%. Eastern uses a 10% cutoff rate when using present value analysis. Other information regarding the proposal is as follows:

Year 1 Year 2 Year 3

Cash inflow from operations (pre-tax) $50,000 $67,000 $55,000

Depreciation 35,000 35,000 35,000

Net income from investment 10,500 22,400 14,000

PV factor @10% .90909 .82645 .75131

Required:

A. Compute the annual net after-tax cash inflows from this proposal for each year.

B. Compute the net present value and indicate whether it is positive or negative.

C. Compute the excess present value index.

D. Compute the cash payback period.

E. Compute the average rate of return.