1. What is the exact after-tax IRR on a project for which the first cost is $12 000, savings are $5000 in the first year and $10 000 in the second year, taxes are at 40%, and depreciation is calculated using the prime cost method? The project has a two-year life.
2. Tasmanian Tools is considering the purchase of production equipment with a first cost of $450 000. After its five-year life, due to increasing demand for this kind of equipment, it will be sold for its original purchase price. The equipment will provide a net value of $450 000 per year during the five-year period. Given that depreciation is declining balance, the after-tax ALARR is 20%, and the corporate income tax rate is 40%, what is the total after-tax annual cost of the equipment?