Tech Motor is a leading manufacturer of alloy wheels for car enthusiasts. Lee is the financial manager of the firm and is responsible for analysing the companys financial issues. The production department has proposed the purchase of a new CNC One-stop Manufacturing System (COMS) to improve the production capacity and quality of its alloy wheels. The new manufacturing system is expected increase the firms net revenue (before taxes and depreciation expenses) by $240,000 in each of the next four years. Lee has also obtained the following information from the production manager:

	Proposed situation	Existing situation
Initial purchase price	$1,500,000	$1,000,000
Shipping and installation cost	$300,000	$200,000
Required net working capital	$430,000	$350,000
Annual cost of maintenance	$260,000	$320,000
Current market value (CMV)	Not applicable	$800,000
Expected salvage value	$0	$0
Existing usage	0 years	2 years
Expected economic life	4 years	6 years

Tech Motor uses the straight-line depreciation method on all its production machinery with the marginal tax rate of 18%.

Required:

a. Determine the initial outlay associated with this proposed purchase.

b. What are the annual after-tax cash flows associated with this project for Years 1 to 3? Also, determine the after-tax cash flow at the terminal year (Year 4)?

c. Discuss how the tax rules on depreciation affect the firms asset purchase investment decision.