$$Below is both the question problem as well as MY calculations and answers. My problem is: I$\text{'}$m concern my NPV answer is somehow incorrect but I$\text{'}$m not sure how or where I went wrong in my calculation steps. So I need help looking over it all and finding my misteps, if there are any. $??$Is the $40\%$ tax supposed to on the pretax operating income, or on the incremental depreciation?? Thank you$$

Financial Analysis: C$10$: Pr $10-2$:

The Dauten Toy Corporation currently uses an injection molding machine that was purchased two years ago. This machine is being depreciated on a straight$-$line basis toward a $$500$ salvage value, and it has six years of remaining life. Its current book value is $$2,600,$ and it can be sold for $$3,000$ at this time. Thus, the annual depreciation expense is $($$$2,600-$ $$500)/6=$ $$350$ per year.

Dauten is offered a replacement machine that has a cost of $$8,000,$ an estimated useful life of six years, and an estimated salvage value of $$800.$ This machine falls into the MACRS $5-$year class. $($MACRS $5$year percentages used: Yr$120\%,$ Yr$232\%,$ Yr$319\%,$ Yr$412\%,$ Yr$511\%$ and lastly Yr$66\%).$

The replacement machine would permit an output expansion, so sales would rise by $$1,000$ per year. In addition, the new machine's much greater efficiency would cause operating expenses to decline by $$1,500$ per year. The new machine would require that net working capital be increased by $$1,500.$

Dauten's marginal tax rate is $40$ percent, and its required rate of return is $15$ percent. Should the old machine be replaced?

MY CALCULATIONS: Step $1$: Sale of Old Machine:

Selling price of old: $3000$

$-$Tax on Sale $(40\%)$: $160>(3000-2600)*0\mathrm{.}4$

$=$ Net CF from Sale: $$2840$

Step $1\mathrm{.}5$: Initial Investment Outlay $($Yr $0)$

Purchase of new: $-$$$8000$

Net Working Cap: $(1500)$

Net CF from Old: $2840$

$=$ Initial NCF $($Yr $0)$: $-$$$6,660$

Step $2.$ Change in Depreciation $($MACRS $5-$years$)$:

Yr$1$: $(8000*\mathrm{.}20)-350=$ $$1250$

Yr$2$: $(8000*\mathrm{.}32)-350=$ $$2210$

Yr$3$: $(8000*\mathrm{.}19)-350=$ $$1170$

Yr$4$: $(8000*\mathrm{.}12)-350=$ $$610$

Yr$5$: $(8000*\mathrm{.}11)-350=$ $$530$

Yr$6$: $(8000*\mathrm{.}06)-350=$ $$130$

Step $3$: Tax on Incremental Depreciation:

Yr$1$: $1250*0\mathrm{.}4=$ $$500$

Yr$2$: $2210*0\mathrm{.}4=$ $$884$

Yr$3$: $1170*0\mathrm{.}4=$ $$468$

Yr$4$: $610*0\mathrm{.}4=$ $$244$

Yr$5$: $530*0\mathrm{.}4=$ $$212$

Yr$6$: $130*0\mathrm{.}4=$ $$52$

Step $4$: After$-$tax Incremental Net Cash Flows:

Yr$1$: $$2500-(1250+500)+1250=$ $$2000$

Yr$2$: $$2500-(2210+884)+2210=$ $$1616$

Yr$3$: $$2500-(1170+468)+1170=$ $$2032$

Yr$4$: $$2500-(610+244)+610=$ $$2256$

Yr$5$: $$2500-(530+212)+530=$ $$2288$

Yr$6$: $$2500-(130+52)+130=$ $$2448$

Step $5$: AT Increm NCF $+$ Terminal CF $($Yr $6)$:

$$2448-500*(1-\mathrm{.}4)+800*(1-\mathrm{.}4)+1500$

$=$ $$4128$

INCF $-$ Old Salvage $*(1-$tax$)+$ New

Salvage $*(1-$tax$)+$ Recovery of Net

Working Capital

Step $6$: BA $2$ Calculator for NPV:

CFO: $-6,660$

CF$1$: $2000$

CF$2$: $1616$

CF$3$: $2032$

CF$4$: $2256$

CF$5$: $2288$

CF$6$: $4128$

I$/$Y: $15\%$

NPV $=$ $$1,849\mathrm{.}20($ROUNDED$)$