system with an installed cost of $540,000.This cost will be depreciated straight-line to zero over the project's 5 year life, at the end of which the system can be scrapped for $80,000.The system will save the firm $170,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000.If the tax rate is 34% and the discount rate is 10%, what is the NPV of this project?

Excel:

C D E F G H I

15 Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

16 Initial Investment -$540,000

17 Working Capital -$29,000 29,000

18 Annual Savings $170,000 $170,000 $170,000 $170,000 $170,000

Less : Depreciation (annually) $108,000 $108,000 $108,000 $108,000 $108,000

Savings before Tax $62,000 $62,000 $62,000 $62,000 $62,000

Less: Tax (34%) $21,080 $21,080 $21,080 $21,080 $21,080

Savings after Tax $40,920 $40,920 $40,920 $40,920 $40,920

Add: Depreciation (annually) $108,000 $108,000 $108,000 $108,000 $108,000

Annual Cash Flow $148,920 $148,920 $148,920 $148,920 $148,920

After Tax Salvage Value 0 0 0 0 $52,800

Total Cash Flow $148,920 $148,920 $148,920 $148,920 $230,720

PV Factor 0.909090909 0.826446281 0.751314801 0.683013 0.62092132

PV -$569,000 $135,382 $123,074 $111,886 $101,714 $143,259