Digital Horizons is contemplating the purchase of a new server. The existing server, operational for another year, has a resale value of $3,000. The new server will cost $180,000 and requires an additional investment of $30,000 in working capital. The server is expected to generate $40,000 in additional annual cash inflows for the next six years, with no salvage value at the end. The company’s required rate of return is 6%. There are also setup costs of $4,000 in the first year. Calculate the NPV of the investment and decide if it is a sound investment.

Requirements:

1. Calculate the NPV of the investment.
2. Determine if the purchase is sound.
3. Include the salvage value of the existing server.
4. Consider additional working capital and setup costs.
5. Use a discount rate of 6%.