The XYZ company plans to invest in a water purification system (7-year MACRS property) requiring $500,000 capital. The firm has $300,000 available and must borrow the additional $200,000 at an interest rate of 15% per year. The system will last for 8 years with a salvage value of $10,000. The before-tax and loan cash flow for each of years 1 to 8 is $150,000. The loan is to be repaid in equal end-of-year payment for four years. Using an effective income tax rate of 35%,

1) The after-tax cash flow for year 1 is nearest to what? A. $52,500 B. $62,955 C. $64,035 D. $78,700

2) The taxable income in year 2 is nearest to what? A. $3,560 B. $5,470 C. $8,550 D. $10,540

3) The interest on borrowed money for year 3 is nearest to what? A. $4,700 B. $9,140 C. $17,085 D. $23,990

4) The cash flow for taxes in year 4 is nearest to what? A. $12,400 B. $15,915 C. $16,995 D. $27,445