LODH Company, must install safety devices throughout its plant or it will lose its insurance coverage. Two alternatives are acceptable to the insurer. The first costs $400000 to install and $80000 to maintain annually. The second costs $600000 to install and $40000 to maintain annually. Each has a 10-year income tax life and a 10-year useful life. LODH's discount rate is 12 per cent, its marginal tax rate is 30 per cent and it uses straight-line depreciation.

Present value interest factor of an (ordinary) annuity of $1 per period at 12% for 5 years, PVIFA (12%,10), is 5.650 and for 15 years.

Required:

(a)What is the after-tax cash flow for each year? (6 marks)

(b)Which system should be installed using NPV DCF method? (9 marks)