Which is the way to solve it?
The president of Real Time Inc. has asked you to evaluate the proposed acquisition of a new computer. The computer's price is $40,000, and it falls in the MACRS 3-year class. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Purchase of the computer would require an increase in net operating working capital of $2,000, which will be recovered in Year 3. The computer would increase the firm's before-tax revenues by $20,000 per year but would also increase operating costs by $5,000 per year. The computer is expected to be used for three years and then sold for $25,000. The firm's marginal tax rate is 40%, and the project's cost of capital is 14%.
What is the project's NPV?
a.$5,712
b.$2,622
c.$2,917
d.$2,803
e.$6,438