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Market Top Investors, Incorporated, is considering the purchase of a $485,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $132,000. The computer will replace two office employees whose combined annual salaries are $98,000. The machine will also immediately lower the firm’s required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project.

Market Top Investors, Incorporated, is considering the purchase of a $485,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $132,000. The computer will replace two office employees whose combined annual salaries are $98,000. The machine will also immediately lower the firm’s required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Market Top Investors, Incorporated, is considering the purchase of a $485,000 computer with an economic life of six years. The computer will be fully depreciated over six years using the straight-line method, at which time it will be worth $132,000. The computer will replace two office employees whose combined annual salaries are $98,000. The machine will also immediately lower the firm’s required net working capital by $87,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. The appropriate discount rate is 8 percent. Calculate the NPV of this project.

 

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