Capital budgeting

Yes - what you have done is correct. The incremental/extra cost is subtracted from the revenue to get the cash flow. Instead of discounting each year separately (which is fine) it is faster to use the annuity factor for the 90,000 a year for 5 years, and then discount the scrap of 20,000 separately for 5 years.

90,000 is the cash flow. For the profit you need to calculate the average depreciation which is (300000 - 20000)/5 = 56,000 p.a.. So the average profit is 34,000 p.a. The average investment is (300000+20000)/2 = 160,000 So the ARR = 34,000/160,000