Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $445,000 This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $53,000. The sausage system will save the firm $139,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $25,000. If the tax rate is 23 percent and the discount rate is 11 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV

Answer 1

solution: 4 5 0 -445000| 1 | 107030 2 | 107030 3 | 107030 - 107030 initial cost savings in after tax operating cost =139000*(1-0.23) changes in net working capital after tax salvage value =53000*(1-0.23) tax shiled on depreciation =(445000/5)*0.23 -25000 net cash ht factor at 107030 25000 40810 20470 193310 0.59345 114,720.08 20470 20470 20470 127500 127500 127500 0 .90090. 0.81162.0.73119 114,864.86 103,481.86 93,226.90 20470 127500 0.65873 83,988.20 -470000 1.00000 - 470,000.00 40,281.90 x discount factor at 11% PV NPV