Purchasing a Milling machine will cost $95,000. Installing the machine cost $15,000. Installiation and milling machine cost go together. Special tools that need purchasing cost $10,000. The Milling machine has a lifetime of 10 years. The special tools have a lifetime of 5 years. The Milling machine has a salvage value of $10,000. The special tools have a salvage value of $300.

Milling machine is classified as a 7 year MACRS property and the special tools are a 3 year MARCS property.

Milling machine has annual revenue of $80,000 and annual usage cost of $31,500.

Marginal tax income rate is 35% over 10 year lifetime. The firm’s market interest rate is 18% and expected inflation is 4%.

This is a very involved problem. Please show work and I will definitely give rating! Only answer if failure with problem and know solution approach. Thanks! Below are the questions.

1. Determine the cash flow in actual (non inflated) dollars and the cash flow with inflation.

2. Rate of return before taxes (Both with inflation and without inflation)

3. Rate of return after taxes (Both with inflation and without inflation)