B Company is considering replacing an existing processor with a new one that costs $240,000. Shipping and setup costs for the new processor are estimated.to be $13,000. B Company's working capital is expected to increase by $15,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor's useful life is expected to be 5 years and its salvage value at that point is estimated to be $49,900. The old processor had an installed cost of $120,000 when it was placed in service three years ago and is being depreciated to a zero book value using a 5 year ACRS life. The processor can be sold today for $33,200. The increase in revenues and before tax cash operating expenses for the new processor compared to continuing with the old processor are shown in the table below. B Company has a marginal tax rate of 34% and a cost of capital of 10%.

YearIncremental RevenuesIncremental Cash Operating ExpensesACRS Depr. %1$80,000$22,000152$79,000$21,000223$91,000$30,000214$88,000$25,000215$88,000$28,00021

The initial investment for the project is:

$231,295

$223,876

$224,266

$228,952

The installed cost of the new processor is:

$207,000

$228,000

$253,000

$238,000

Incremental depreciation expense for year 2 in the life of the new processor is:

$34,120

$31,680

$32,900

$30,460

Operating Cash Flow After Tax (OCFAT) for year 3 of the life of the new processor is:

$58,324

$54,074

$63,106

$43,448

After tax salvage value of the new processor at the end of year 5 is:

$32,934

$37,545

$29,641

$36,886

Operating cash flow after tax (OCFAT) for year 5 of the life of the new processor is

$99,011

$105,598

$102,305

$103,622

NPV of the project is:

$129

$122

$103

$110