Answer : NPV = $161,615.33
Explanation :
Depreciation per year = ($2,370,000 / 3 years) = $790,000.
Tax shield on depreciation = Depreciation per year * tax rate = $790,000 * 24 % = $189,600
Net income after tax = Sales - Costs = ($1,755,000 - $665,000) * (1- 0.24) = $828,400.
Annual Operating Cash flow = Net income after tax + tax shield on depreciation
= $828,400 + $189,600 = $1,018,000
Calculation of NPV
= Fixed assets costs - (Operating Cash flow* PVIFA 10%,3 years)
= $2,370,000 - ($1,018,000 * 2.48685199098)
= $2,370,000 - $2,531,615.33
= $161,615.33
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