Kolby’s Korndogs is looking at a new sausage system with an installed cost of $5

ID: 2711080 • Letter: K

Question

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $522,000. This cost will be depreciated straight-line to zero over the project’s four-year life, at the end of which the sausage system can be scrapped for $106,000. The sausage system will save the firm $194,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $52,000.

Required:

If the tax rate is 40 percent and the discount rate is 9 percent, what is the NPV of this project?