Question

Market Top Investors, Inc., is considering the purchase of a $365,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $114,000. The computer will replace two office employees whose combined annual salaries are $95,000. The machine will also immediately lower the firm’s required net working capital by $84,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 9 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Please help figure out where I am making a mistake:

Streight line Method depreciation: Accumulated Depreciation = Cost of Asset/Economic Life
Year	0	1	2	3	4
Savings in annual cost before tax)		$95,000	$95,000	$95,000	$95,000
Depreciation Exense		($91,250)	($91,250)	($91,250)	($91,250)
Net Savings before tax		$3,750	$3,750	$3,750	$3,750
Less Tax		$2,850	$2,850	$2,850	$2,850
After Tax Savings		$900	$900	$900	$900
Initial Investemetn	($365,000)
After Tax Salvage Value					$     86,640.00
Working Capital	$84,000				($84,000)
Add back depreciation expense		$91,250	$91,250	$91,250	$91,250
Net Cash Flow	($281,000)	$         92,150.00	$92,150	$92,150	$94,790
PV Factor @9%	1	0.917431193	0.841679993	0.77218348	0.77218348
PV	($281,000)	$         84,541.28	$77,560.81	$71,156.71	$73,195.27
NPV	$25,454.08

Answer 1

Time line		0	1	2	3	4
Cost of new machine		-365000
Initial working capital		84000
=Initial Investment outlay		-281000
							100.00%
Savings			95000	95000	95000	95000
-Depreciation	Cost of equipment/no. of years		-91250	-91250	-91250	-91250	0
=Pretax cash flows			3750	3750	3750	3750
-taxes	=(Pretax cash flows)*(1-tax)		-900	-900	-900	-900
+Depreciation			91250	91250	91250	91250
=after tax operating cash flow			94100	94100	94100	94100
reversal of working capital						-84000
+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)					86640
+Tax shield on salvage book value	=Salvage value * tax rate					0
=Terminal year after tax cash flows						2640
Total Cash flow for the period		-281000	94100	94100	94100	96740
Discount factor=	(1+discount rate)^corresponding period	1	1.09	1.1881	1.295029	1.4115816
Discounted CF=	Cashflow/discount factor	-281000	86330.27523	79202.087	72662.465	68533.055
NPV=	Sum of discounted CF=	25727.88