Dog Up! Franks is looking at a new sausage system with an installed cost of $455

Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $455,000. 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 $65,000. The sausage system will save the firm $235,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

NPV___

Dog Up! Franks is looking at a new sausage system with an installed cost of $455,000. 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 $65,000. The sausage system will save the firm $235,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.)

NPV___

Explanation / Answer

Ans)

Cost of Machine 455000 Working capital Cost 24000 Total Cost 479000 Scrap Value 65000 Life 5years Depriciation 479000-65000/5 414000 Deprication 82800 Saving 235000 Less Dep 82800 Net Income 152200 Less Tax 34% 51748 Net Inflow After Tax 100452 Add Dep 82800 Inflows 183252.00 PVAF for 5 years ar 10% 3.7908 Present value of inflow 694671.68 NPV PV of Inflow-Cost of Project 215671.68

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