Answer:
a)
MACRS 3 year depreciation schedule
33.33% x $2,300,000 = $766,590
44.45% x $2,300,000 = $1,022,350
14.81% x $2,300,000 = $340,630
carrying value at end of year 3 = $170,430
net after tax cash flow from salvage value = $210,000 - [($210,000 - $170,430) x 22%] = $201,294.60
cash flows:
year 0 = -$2,300,000 - $270,000 = -$2,570,000
year 1 = [($1,720,000 - $628,000 - $766,590) x 0.78] + $766,590 = $1,020,410
year 2 = [($1,720,000 - $628,000 - $1,022,350) x 0.78] + $1,022,350 = $1,076,677
year 3 = [($1,720,000 - $628,000 - $340,630) x 0.78] + $340,630 + $201,294.60 + $270,000 = $1,397,993
b)
NPV = $297,794, and IRR = 16.12%
