Problem $1(25$ points$).$

Two machines are being evaluated for possible acquisition by the Berra Corporation. Information relating to the two machines is attached.

The company will depreciate the machines using a tax depreciation method called MACRS. This will involve multiplying the cost of the investment by the percentages provided in the attached table for the given year. MACRS depreciation assumes no salvage value in the calculation. The machines will therefore have a book value of zero at the end of their lives when they are sold and this will result in a gain on the sale of the machines at the end of their useful lives in the amount of the salvage value, which will be taxable income at that time. Also, the salvage value should be ignored when calculating the average investment in the machine.

The company's average income tax rate is $25\%.$ Its after tax cost of capital is $10\%.$ It also desires projects to pay back their investment, after tax in $5$ years or less.

REQUIRED: $(1)$ Complete the attached tables for each machine, showing appropriate calculations. Round all calculations to the nearest whole dollar.

$(2)$ Using the attached answer sheet, compute the accounting rate of return, after tax, for each machine. Round your percentages to two decimal places $($four decimal places in all$).$

$(3)$ Using the attached answer sheet, compute the cash payback period, after tax, for each machine. Round all computations to two decimal places.

$(4)$ Using the attached answer sheet, compute the net present value, after tax, for each machine. Round all computations to the nearest whole dollar.

$(5)$ Using the attached answer sheet, indicate in which machine the company invest? Provide an explanation for your choice.