Initial Cash Flows:

1. Cost of New Equipment = -$14,200

2. Change in working Capital (-1000-1500+780)= -$1,720
3. Tax Impact of New Equipment = 0
4. Salvage Value of Old Equipment = +$1,500
5. Tax Impact of Old Equipment (=(3000-1500)*40%) = +600
Total Initial Cash Flows = -$13,820

Operating Cash Flows Years 1-3

Year 1
17000
15000
2000
7000
1000

New Sales
Old sales
Net sales change
Add: Fixed costs
Less: Net variable costs
Less: New dep
Add: Old dep
Net dep

4686
1000
3686

EBIT
Less: Taxes 40%
NOPAT
Add: net dep
OCF

4314
1725.6
2588.4
3686
6274.4

Salvage of New Machine = +2000

Tax impact of New Machine (( {14200*7%}-2000)*40%) = -402.40
Chnage in working capital =+1720
Opportunity Cost of old equipment = -500
Tax impact of old machine opportunity costs = - ((0-500)*40%) = +200
Terminal Cash Flows = (2000-402.40+1720-500+200) = 3017.60
Timeline
Year
Initial
Operating
Terminal
Totals
NPV
IRR

0
-13820

-13820
$2,056.39
24.4657%

Year 2
17000
15000
2000
7000
1000

Year3
17000
15000
2000
7000
1000

6390
1000
5390

2130
1000
1130

2610
1044
1566
5390
6956

6870
2748
4122
1130
5252

6274.4

6956

6274.4

6956

5252
3017.6
8269.6