Question

Market Top Investors, Inc., is considering the purchase of a $350,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $66,000. The computer will replace two office employees whose combined annual salaries are $87,000. The machine will also immediately lower the firm’s required net working capital by $76,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 21 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.)

Is it worthwhile to buy the computer?

No Yes

Answer 1

PV FACTOR = 1/(1+r)^n

FOR EXAMPLE, FOR YEAR 2 = 1/(1+0.09)^2 = 0.841680