Initial Cost Savings Tax Rate Expected Salvage Discount Rate MACRS Depreciation Schedule Year 1 2 3 4 Book value year 5 Percentage 33.33% 44.45% 14.81% 7.41% Depreciation Expense Year 1 2 3 4 Operating Cash Flow Net Capital Spending Changes in NWC Cash Flow from Assets Net Present Value Internal Rate of Return Depreciation Expense = initial cost * percentage Operating Cash Flow =(sales - costs)*(1 - tax rate) + depreciation*tax rate note that sales = 0 and a cost savings is -costs After-tax Salvage =salvage - tax rate(salvage - book value)