Nata, Inc., is considering the purchase of a $368,000 computer with an economic

Question

Nata, Inc., is considering the purchase of a $368,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $68,000 in five years. The computer will replace 5 office employees whose combined annual salaries are $113,000. The machine will also immediately lower the firm’s required net working capital by $88,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 35 percent. The appropriate discount rate is 12 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) NPV $

Explanation / Answer

cashout flow depreciation cost of machine 368000 cost of machine 368000 less working capital requirement 88000 scrap value at end of life 68000 net cash outflow 280000 depreciable value 300000 depreciation 60000 year annual saving less dep after dep savings tax 35% after tax dep add dep after tax before dep savings discount factor@12% 1 113000 60000 53000 18550 34450 60000 94450 0.8928571 84330.36 2 113000 60000 53000 18550 34450 60000 94450 0.7971939 75294.96 3 113000 60000 53000 18550 34450 60000 94450 0.7117802 67227.64 4 113000 60000 53000 18550 34450 60000 94450 0.6355181 60024.68 5 113000 60000 53000 18550 34450 60000 94450 0.5674269 53593.47 68000 0.5674269 38585.03 present value of cash inflow 379056.1 cash outflow 280000 NPV 99056.14

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