Peach Inc. is planning to purchase an automated special-purpose welder for $610,000. The machine is expected to have a useful life of five years with no salvage value. A $15,000 investment in working capital is required and will be recovered at the end of 5 years.

The welder is expected to produce an additional 60,000 trailer hitches each year. and each hitch sells for $16. Additional variable production costs are $10 per hitch and a new supervisor will be hired to the operation of the new welder; her salary is $7,000 per month. The company plans to allocate $150 of common corporate fixed overhead costs, each year, to the new welder. Repairs and maintenance on the new welder are estimated to be $60,000 per year

REQUIRED: (CCA = 20%; tax rate = 25%; required rate of return: 10%)

1. Calculate the net annual after tax cash flow created by the new welder. (5 marks)
2. Calculate the welders after-tax payback period based on your answer from #1 above and

briefly comment on the relevance, if any, of this computation. (11 marks)

3. Calculate the after tax accrual accounting rate of return (AARR) based on the net initial investment and briefly comment on the relevance, if any, of this computation. (6 marks)
4. Calculate the net present value of the new welder and briefly comment on the relevance, if any, of this computation. (9 marks)
5. Briefly discuss whether you would purchase the welder. (3 marks)