Market Top Investors, Inc., is considering the purchase of a $365,000 computer with an economic life

Market Top Investors, Inc., is considering the purchase of a $365,000 computer with an economic life of four years. The computer will be fully depreciated over four years using the straight-line method, at which time it will be worth $114,000. The computer will replace two office employees whose combined annual salaries are $95,000. The machine will also immediately lower the firm’s required net working capital by $84,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 24 percent. The appropriate discount rate is 9 percent. Calculate the NPV of this project. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Please help figure out where I am making a mistake: Streight line Method depreciation: Accumulated Depreciation = Cost of Asset/Economic Life Year 0 1 2 3 4 Savings in annual cost before tax) $95,000 $95,000 $95,000 $95,000 Depreciation Exense ($91,250) ($91,250) ($91,250) ($91,250) Net Savings before tax $3,750 $3,750 $3,750 $3,750 Less Tax $2,850 $2,850 $2,850 $2,850 After Tax Savings $900 $900 $900 $900 Initial Investemetn ($365,000) After Tax Salvage Value $     86,640.00 Working Capital $84,000 ($84,000) Add back depreciation expense $91,250 $91,250 $91,250 $91,250 Net Cash Flow ($281,000) $         92,150.00 $92,150 $92,150 $94,790 PV Factor @9% 1 0.917431193 0.841679993 0.77218348 0.77218348 PV ($281,000) $         84,541.28 $77,560.81 $71,156.71 $73,195.27 NPV $25,454.08

 

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