Problem:
Scott Investors, Inc. is considering the purchase of a $360,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $60,000 in five years. The computer will replace five office employees whose combined annual salaries are $105,000. The market will also immediately lower the firm's require net working capital by $80,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 34%. The appropriate discount rate is 12%. Explain comprehensively and also provide formulas and calculations.