Dog Up! Franks is looking at a new sausage system with an installed cost of $514
ID: 2642572 • Letter: D
Question
Dog Up! Franks is looking at a new sausage system with an installed cost of $514,800. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $79,200. The sausage system will save the firm $158,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $36,960. If the tax rate is 32 percent and the discount rate is 14 percent, the NPV of this project is $___________.
Explanation / Answer
the total cost of this alternative is=
$514,000+ 36,960= $550,960.
the benefits are=
yearly savings of $158,400, deduction of tax is 32%, after tax the income is $107,712
the present value of the annuties= (107,712X2.914)+ 79,200X0.592
= 313,872+ 46,886
= $360,784
NPV= 360,784- 514,800
= (-154,041 negitive value)
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