Problem $12-28($Algo$)$ Working capital requirements in capital budgeting $[$LO$12-4]$

The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $$80,000.$ Of this amount, $$70,000$ is subject to five$-$year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $$10,000.$ The depreciated assets will have zero resale value. Use Table $12-12.$ Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The contract will require an additional investment of $$41,000$ in working capital at the beginning of the first year and, of this amount, $$21,000$ will be returned to the Spartan Technology Company after six years.

The investment will produce $$33,000$ in income before depreciation and taxes for each of the six years. The corporation is in a $25$ percent tax bracket and has a $14$ percent cost of capital.

a$.$ Calculate the net present value.

Note: Do not round intermediate calculations and round your answer to $2$ decimal places.

Net present value

b$.$ Should the investment be undertaken?

Yes

No