K L M N AA B D E F G H 1 CAPITAL BUDGETING WITH INCOME TAXES 2 Montreal Paper Company must purchase a paper sorter to replace its existing one on January 1, 2022. 3 This is an essential investment because manual sorting is too demanding and causes physical problems for employees. 4. Two models that would adequately meet the company's needs are the price and Allen models. 5 Information related to each model includes: 6 7 8 9 $ $ $ Price 47,500 $ 20,000 $ $ 8 24,000 $ Cost of machines Working Capital needed Salvage value Life - years Annual savings of operating costs CCA Income Tax rate After-tax Cost of capital Allen 95,000 25,000 10,000 8 40,000 10 11 12 $ 13 14 30% 25% 12% 15 16 17 Required: Allen Annual Net Cash Flow 18 A) Compute the after-tax net present value, internal rate of return, payback periods and profitability index for both models using the total-cost approach. 19 20 Price 21 YEAR Annual Net Cash YEAR 22 Flow 23 1/1/22 1/1/22 24 12/31/22 12/31/22 25 12/31/23 12/31/23 26 12/31/24 12/31/24 27 12/31/25 12/31/25 28 12/31/26 12/31/26 29 12/31/27 12/31/27 30 12/31/28 12/31/28 31 12/31/29 12/31/29 32 12/31/29 12/31/29 33