Happy Chappy Ltd are investigating the replacement of an existing piece of equipment with a more sophisticated one. The old equipment cost $100,000 two years ago. It has been depreciated at a straight-line rate of 20%. If sold today, the old equipment would sell for $50,000. It has three years of usable life remaining, but at the end of its life would have zero salvage value. The new equipment would cost $150,000 plus $20,000 installation costs. It would be depreciated straight-line at 20% through-out its three year useful life. At the end of its life, it could be sold for $80,000. As a consequence of purchasing the new equipment, operating costs (excluding depreciation) would decrease by $30,000 in each of the next three years. The firm pays tax on income of 33 per cent, and the relevant discount rate for the project is 16 per cent. The incremental annual depreciation to be claimed as a result of the purchase of new equipment is:

What is the NPV:

The book values for the old and new equipment at the end of year three (i.e. three years from now) are, respectively:

The sale of the new equipment at the end of year three results in:

Please show ALL working out, so I can understand what to do