Market Top Investors, Inc., is considering the purchase of a$365,000 computer with an economic life of four years. The computerwill be fully depreciated over four years using the straight-linemethod, at which time it will be worth $114,000. The computer willreplace two office employees whose combined annual salaries are$95,000. The machine will also immediately lower the firm’srequired net working capital by $84,000. This amount of net workingcapital will need to be replaced once the machine is sold. Thecorporate tax rate is 24 percent. The appropriate discount rate is9 percent. Calculate the NPV of this project. (Do not roundintermediate calculations and round your answer to 2 decimalplaces, e.g., 32.16.)
Please help figure out where I am making a mistake:
Streight line Method depreciation: Accumulated Depreciation =Cost of Asset/Economic Life | |
Year | 0 | 1 | 2 | 3 | 4 |
Savings inannual cost before tax) | $95,000 | $95,000 | $95,000 | $95,000 |
Depreciation Exense | | ($91,250) | ($91,250) | ($91,250) | ($91,250) |
NetSavings before tax | | $3,750 | $3,750 | $3,750 | $3,750 |
LessTax | | $2,850 | $2,850 | $2,850 | $2,850 |
| | | | | |
After Tax Savings | | $900 | $900 | $900 | $900 |
| | | | | |
Initial Investemetn | ($365,000) | | | | |
After TaxSalvage Value | | | | $Â Â Â Â 86,640.00 |
Working Capital | $84,000 | | | | ($84,000) |
Add backdepreciation expense | $91,250 | $91,250 | $91,250 | $91,250 |
NetCash Flow | ($281,000) | $Â Â Â Â Â Â Â Â 92,150.00 | $92,150 | $92,150 | $94,790 |
PVFactor @9% | 1 | 0.917431193 | 0.841679993 | 0.77218348 | 0.77218348 |
PV | ($281,000) | $Â Â Â Â Â Â Â Â 84,541.28 | $77,560.81 | $71,156.71 | $73,195.27 |
NPV | $25,454.08 | | | | |