Annual depreciation = $3.

93 million/4 years = $982,500

Tax savings on depreciation = Depreciation*Tax rate = $982,500*40% = $393,000

Annual sales = $2,630,000

Annual cost of sales and operating expenses = 30%*$2,630,000 = $789,000

Annual net income before taxes = $2,630,000-$789,000 = $1,841,000

Annual net income after taxes = $1,841,000*(1-0.40) = $1,104,600

Annual free cash flows = Annual net income after taxes + Tax savings on
depreciation = $1,104,600 + $393,000 = $1,497,600

The annual free cash flows of equal amount at the end of each year will form an
ordinary annuity of uniform amount.

Present value of ordinary annuity of equal amount = Annuity amount*{1-(1+r) -n}/r

Present value of annual free cash flows = $1,497,600*(1-1.13 -4)/0.13 =

$4,454,568.26

Present value of net working capital investment to be recovered at the end of year 4
= $280,000/1.134 = $171,729.24

Initial investment = Cost of machine + Additional working capital investment =

$3,930,000+$280,000 = $4,210,000

Net present value = -Initial investment + Present value of annual free cash flows +
Present value of working capital investment recovered

Net present value = -$4,210,000+$4,454,568.26+$171,729.24 = $416,297.50

Yes, the company should proceed with the project.