Problem II

TWU Corporation is reviewing an investment proposal that has an initial cost of $52,500. An estimate of the investment's end-of-year book value, the yearly after-tax net cash inflows, and the yearly net income are presented in the schedule below. Yearly after-tax net cash inflows include savings from the depreciation tax shield. The investment's salvage value at the end of each year is equal to book value, and there will be no salvage value at the end of the investment's life.

Year	Initial Cost and Book Value	Yearly After-Tax Net cash Inflows	Yearly Net Income
1	$35,000	$20,000	$2,500
2	21,000	17,500	3,500
3	10,500	15,000	4,500
4	3,500	12,500	5,500
5	---	10,000	6,500
		$75,000	$22,500

TWU uses a 14% after-tax target rate of return for new investment proposals.

Year	FV of $1 at 14%	FV of an ordinary annuity at 14%	PV of $1 at 14%	PV of an ordinary annuity at 14%
1	1.140	1.000	0.877	0.877
2	1.300	2.140	0.769	1.647
3	1.482	3.440	0.675	2.322
4	1.689	4.921	0.592	2.914
5	1.925	6.610	0.519	3.433
6	2.195	8.536	0.456	3.889
Required: A. Calculate the project's payback period. B. Calculate the accounting rate of return on the initial investment. C. Calculate the proposal's net present value. Round to the nearest dollar. D. Calculate the present value index for this project.