The XYZ Inc. has asked you to determine some of the after-tax cash flows for equipment to be used in research and experimentations. XYZ expects to purchase $300,000 worth of such equipment. The equipment is expected to operate for five years. The equipment will have a resale value of $120,000 at the end of the five years. XYZ plans to use MACRS depreciation schedule for income tax calculations. The income tax rate is 25%, and XYZ uses an after-tax MARR of 10%. The equipment results in an increase in XYZ's before-tax annual income of $55,000. Determine if it is worth investing on this equipment.

(a) Show before-tax cash flows (BTCF) from n=0 through n=5.

(b) Find MACRS property-class for equipment in research and experimentations. Calculate depreciation charges from n=1 to n=5. It is expected to operate for 5 years (not disposed after 5 years), so use full-year depreciation charge for 5^th year.

(c) Determine taxable income for n=1 to n=5. Consider the depreciation recapture/loss or capital gain at n=5.

(d) Compute income taxes for n=1 to n=5.

(e) Show after-tax cash flows (ATCF) from n=0 through n=5.

(f) Use the after-tax rate of return or present worth to determine if this investment is worth.