Question: A new electronic process monitor costs $701,000. This cost could be depreciated at 30 percent per year (Class 10). The monitor could actually be worthless in 5 years. The new monitor would save us $365,000 per year before taxes and operating costs.
a) If we require a 13 percent return, what is the NPV of the purchase? Assume a tax rate of 28 percent.
b) In the previous question, suppose the new monitor also requires us to increase net working capital by $39.100 when we buy it. Further suppose that the monitor could actually be worth $101,000 in 5 years. What is the NPV?