Dog Up! Franks is looking at a new sausage system with an installed cos: of $510

Question

Dog Up! Franks is looking at a new sausage system with an installed cos: of $510,000. This cos: will be deprecated straight-line ;o zero over the project's five-year life, at the end of wftch the sa-sage system can be scrapped for $76,000. The sausage system writ save the firm $190,000 per year m pretax operating costs, and the system requires an initial investment in net working capital of $$5,000. 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.)

Explanation / Answer

Solution :

Present value of cash inflow

savings in operting cost (190000*0.66*3.79078)

               475,364.66

tax shield on depreciation (510000/5)*.34*3.79078

               131,464.49

Working capital returnd (35000*0.62092)

                 21,732.25

salvage (76000*0.62092*.66)

                 31,145.41

Present value of cash inflow

               659,706.81

Present value of cash outflow (510000+35000)*1

               545,000.00

NPV

               114,706.81

Present value of cash inflow

savings in operting cost (190000*0.66*3.79078)

               475,364.66

tax shield on depreciation (510000/5)*.34*3.79078

               131,464.49

Working capital returnd (35000*0.62092)

                 21,732.25

salvage (76000*0.62092*.66)

                 31,145.41

Present value of cash inflow

               659,706.81

Present value of cash outflow (510000+35000)*1

               545,000.00

NPV

               114,706.81

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