(Multiple methods) Southwest Products Inc. is considering the various benefits that may result from shortening the development stage of its products’ life cycles by changing from the company’s present manual system to a computer-aided manufacturing (CAD/CAM) system. The proposed system can provide produc¬ tive time equivalent to the 20,000 hours currently available with the manual system. The incremental, annual out-of-pocket costs of maintaining the manual system are $20 per hour.
The incremental, annual out-of-pocket costs of maintaining the CAD/CAM system are estimated to be $200,000 with an initial investment of $580,000 in the proposed system. The estimated useful life of this system is 6 years. South¬ west Products requires a minimum rate of return of 20 percent on projects of this type. Full capacity will be utilized.

a. Compute the relevant annual after-tax cash flows related to the CAD/CAM project.

b. Based on the computation in part

a, compute the payback period, internal rate of return (round to the nearest .5 percent), net present value, and prof¬ itability index.

c. Based on the company’s investment evaluation criterion, is the project ac¬ ceptable? Explain.
(CMA)