Answer for C:
Project Cost = $5000
Annual cash flow before tax = $2500
Cash flow after tax = $2500 - ($2500*25%) = $1875
Payback period = $5000 / $1875 = 2.67 years
Answer for D2:
Cash flows after Expenses = Cash inflow - Cash expenses - Depreciation
= $4000 - $1500 - $900 = $1600
Where, Depreciation = (5000-500)/5 = $900
Net cash flows after tax = $1600 - ($1600*25%) = $1200
Book rate of return = Net cash flows after tax / Original Investment x 100 = $1200/$5000 x 100 = 24%
Book rate of return = 24%
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