<span>To answer this problem, 1st let us calculate
the total annual cash flow.</span>
We define the given variables:
Annual Income = $2,060,000
Annual Cost = $755,000
Annual Profit = $2,060,000 - $755,000 = $1,305,000
Annual Tax = $1,305,000 * 0.35 = $456,750
Depreciation = $2.64 million / 3 = $880,000
Savings from Depreciation = $880,000 * 0.35 = $308,000
Therefore,
Annual Cash Flow = Annual Profit + Savings from
Depreciation
Annual Cash Flow = $1,305,000 + $308,000
Annual Cash Flow = $1,613,000
The present value of annuity is:
P = A [1 – (1 + i)^-n ] / i
P = $1,613,000 [1 – (1 + 0.13)^(-3)] / 0.13
<span>P =
$3,808,539.14 = NPV</span>
