Question

Nata, Inc., is considering the purchase of a $410,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $74,000 in five years. The computer will replace 5 office employees whose combined annual salaries are $119,000. The machine will also immediately lower the firm’s required net working capital by $94,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 40 percent. The appropriate discount rate is 14 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) NPV $

Answer 1

Net Present Value (NPV) of the Project = - $8,209 (Negative NPV, Rounded)

Particulars	Cash Flow	PVIF / PVF at 14%	Present Value
Initial investment required	(410,000)	1.00000	(410,000)
Working Capital Required	(94,000)	1.00000	(94,000)
Annual Cash Inflow [ Years 1 - 5 ]	119,000	3.433081	408,537
Salvage Value [ End of Years 5 ]	74,000	0.519369	38,433
Release of working capital [ End of Years 5 ]	94,000	0.519369	48,821
Net Present Value [ NPV ]			- $8,209

" Net Present Value (NPV) of the Project = - $8,209 (Negative NPV, Rounded) "