Initial investment = -800,000 -45,000 = -845,000
Annual Operating Cash Flows = (Annual Savings -
Depreciation)*(1-Tax Rate) + Depreciation
= ($150,000 - ($800,000/5)) * (1 - 35%) + ($800,000/5)
= ($150,000 - $160,000) * 0.65 + $160,000 = $153,500.
Terminal Year Cash Flow (Year 5) = Annual Operating Cash Flow +
Recovery of Working Capital + Market Value*(1-Tax Rate)
= $153,500 + $45,000 + $95,000 * (1-35%)
= $260,250.
NPV = -845,000 + (153,500/(1+0.10)^1) + (153,500/(1+0.10)^2) +
(153,500/(1+0.10)^3) + (153,500/(1+0.10)^4) +
(153,500/(1+0.10)^5)
= -$196,830.88
NPV = -$196,830.88
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