Problem 10-17A Appling the net present value approach with and without tax considerations Antonio Melton, the chief executive officer of Melton Corporation, has assembled his top advisers to evaluate an investment opportunity. The advisers expect the company to pay $500,000 cash at the beginning of the investment and the cash inflow for each of the following four years to be the following. Year 1 Year 2 Year 3 Year 4 $105,000 $120,000 $150,000 $225,000 Mr. Melton agrees with his advisers that the company should use a desired rate of return of 7 percent to compute net present value to evaluate the viability of the proposed project. Required Round your computation to the nearest whole dollar. a. Compute the net present value of the proposed project. Should Mr. Melton approve the project? b. Shawn Love, one of the advisers, is wary of the cash flow forecast and she points out that the advisers failed to consider that the depreciation on equipment used in this project will be tax deductible. The depreciation is expected to be $100,000 per year for the four-year period. The company's income tax rate is 30 percent per year. Use this information to revise the company's expected cash flow from this project. c. Compute the net present value of the project based on the revised cash flow forecast. Should Mr. Melton approve the project? SWIFT DELIVERY Net Present Value Calculations Alternative 1: Cash Inflows Amount Table Value Present Value Annual Cash Inflows Salvage Value Working Capital Recovery Total cash inflow Cash outflows Cost of Vans Working Capital Increase Net Present Value Try again Alternative 2: Cash Inflows: Amount Table Value Present Value Year 1 Year 2 Year 3 Year 4 Salvage Value Total cash inflow Cash Outflows Cost of Trucks Training Cost Net Present Value $ Try again b. Present Value Indexes: Alternative 1 #DIV/0! DIVO! Alternative 2 #DIV/0! #DIVO! Given Data P10-16 SWIFT DELIVERY Cash capital ac $ 4.000.000 Alternative 1: Cost of new var $ 900,000 Expected annus $ 325,000 Useful life of ne 4 Combined salve $ 100,000 Additional work $ 50,000 Alternative 2: Cost of new true $ 1,000,000 Reduction in ca $ 175.000 Reduction in ca $ 375,000 Reduction in ca $ 450,000 Reduction in ca $ 500,000 Useful life of ne 4 Salvage values 81,250 Training costs $ 20,000 Desired rate of 10%