Annual net savings = Annual revenue - Annual cost - Annual tax = 1,350,000 - 360,000 - 160,000 = 830,000
(a)
NPW = - 4,000,000 + 840,000 x P/A(16%, 9) + 200,000 x P/F(16%, 9)
= - 4,000,000 + 840,000 x 4.6065 + 200,000 x 0.2630
= - 4,000,000 + 3,869,460 + 52,600
= - 77940
(b) NO.
Since NPW < 0, system is not justified.
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