B Company is considering replacing an existing processor with a new one that costs $195,000. Shipping and setup costs for the new processor are estimated.to be $13,000. B Company's working capital is expected to increase by $16,000 when the new processor begins operation and is expected to be fully recoverable at the end of the project. The new processor's useful life is expected to be 5 years and its salvage value at that point is estimated to be $57,800. The old processor had an installed cost of $130,000 when it was placed in service three years ago and is being depreciated to a zero book value using a 5 year ACRS life. The processor can be sold today for $39,800. The increase in revenues and before tax cash operating expenses for the new processor compared to continuing with the old processor are shown in the table below. B Company has a marginal tax rate of 34% and a cost of capital of 9%.

1. The initial investment for the project is:

$172,892

$179,168

$181,410

$173,788

2. The installed cost of the new processor is:

$173,000

$208,000

$183,000

$200,000

Year	Incremental Revenues	Incremental Cash Operating Expenses	ACRS Depr. %
1	$90,000	$22,000	15
2	$80,000	$20,000	22
3	$89,000	$29,000	21
4	$89,000	$23,000	21
5	$88,000	$27,000	21