The Whitefish Manufacturing Company, based in Two Forks, Montana, is one of the fastest growing companies in its industry. According to Mr. Alexander, the company's production vice president, keeping up to date with technological changes is what makes the company successful. Mr. Alexander feels that a machine introduced recently would fill an important need of the company. The machine has an expected useful life of five years, a purchase price of $450,000, and a salvage value of $30,000. The company controller's estimated operating results, using the new machine, are attached. The company uses 200% declining balance depreciation for all its machinery. Mr. Alexander uses an 8% after tax rate of return and an after tax payback period of 3.5 years for capital expenditure evaluation purposes. The company's tax rate is 34%. REQUIRED: (1) Using the attached form, calculate the net cash inflows for each year of the capital investment project. Round all calculations to the nearest whole dollar. (2) Using the attached forms, compute the following capital investment measures for this machine on an after tax basis. (a) Average accounting rate of return. Round your percentage to two decimal places (four decimal places in all). (b) Cash payback period. Round your answer to two decimal places. (c) Net present value. Round all calculations to the nearest whole dollar. (2) Should the company purchase the machine? Explain. WHITEFISH MANUFACTURING COMPANY CASH FLOW ESTIMATES FOR NEW MACHINE (1) WHITEFISH MANUFACTURING COMPANY CALCULATION OF NET INCOME AND NET CASH FLOWS FOR CAPITAL INVESTMENT WHITEFISH MANUFACTURING COMPANY CALCULATION OF DEPRECIATION FOR CAPITAL INVESTMENT \begin{tabular}{|c|c|c|c|} \hline & Year & Calculation & \\ \hline & 1 & & \\ \hline & 2 & & \\ \hline & 3 & & \\ \hline & 4 & & \\ \hline & 5 & & \\ \hline & \multicolumn{3}{|c|}{ Depreciation Amount } \\ \hline (2) & \multicolumn{3}{|c|}{ WHITEFISH MANUFACTURING COMPANY } \end{tabular} WHITEFISH MANUFACTURING COMPANY (a) CALCULATION OF AFTER TAX AVERAGE ACCOUNTING RATE OF RETURN ON CAPITAL INVESTMENT (b) WHITEFISH MANUFACTURING COMPANY CALCULATION OF AFTER TAX CASH PAYBACK PERIOD \begin{tabular}{|l|l|l|} \hline \multicolumn{3}{|c|}{ FOR CAPITAL INVESTMENT } \\ \hline & Cost of Investment & $ \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline & & \\ \hline \end{tabular} (c) WHITEFISH MANUFACTURING COMPANY CALCULATION OF AFTER TAX NET PRESENT VALUE FOR CAPITAL INVESTMENT
