Stulz Co. is considering the purchase of $500,000 computer that has an economic life of five years. The computer will be depreciated based on the system enacted by the Tax Reform Act of 1986 (MACRS). The computer will be sold at $100,000 at the end of year 5. The use of computer saves labor cost of $120,000 annually. It also contributes to lower net working capital by $100,000 when they buy computer. The net working capital will be recovered at the end of the period. During the operation period net working capital is unchanged. The corporate tax rate is 34%. Calculate the NPV of the computer if the appropriate discount rate is 12%?

Answer rating: 100% (QA)

Answer To calculate the Net Present Value NPV of the computer purchase we need to follow these steps Calculate the annual depreciation expense using M... View the full answer