A new electronic process monitor costs $857,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor could actually be worthless in 5 years. The new monitor would save us $311,000 per year before taxes and operating costs. Show the cash flows for each years 0-5!
a) If we require a 14 percent return, what is the NPV of the purchase? Assume a tax rate of 35 percent.
b) In the previous question, suppose the new monitor also requires us to increase net working capital by $37,100 when we buy it. Further suppose that the monitor could actually be worth $116,000 in 5 years. What is the NPV?