Dog Up! Franks is looking at a new sausage system with an installed cost of $508

Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $508831. 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 $72459. The sausage system will save the firm $170292 per year in pretax operating costs, and the system requires an initial investment in net working capital of $32461. If the tax rate is 31 percent and the discount rate is 11 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)

Explanation / Answer

Intial Invetment 5,08,831.00 Initial Investment in Working Capital 32462 Net Initial Investment A 5,41,293.00 Annual savings in Operating cash flow 1,70,292.00 Less Tax      52,790.52 Annual savings in Operating cash flow after tax 1,17,501.48 Add Depreciation Tax shield      31,547.52 Annual Operating Cash flow 1,49,049.00 PVAF @ 11% for 5 years 3.69589702 Present Value of cash savings B 5,50,869.76 Residual Value at the end of 5th Year 72459 Recovery of working capital 32462 Net Cash flow at the end of the project 104921 DF 0.59345133 Present Value     C 62265.5068 NPV=B+C-A      71,842.27

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