Dog Up! Franks is looking at a new sausage system with an installed cost of $515
ID: 2774449 • Letter: D
Question
Dog Up! Franks is looking at a new sausage system with an installed cost of $515,000. 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 $77,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $36,000. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project?
Dog Up! Franks is looking at a new sausage system with an installed cost of $515,000. 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 $77,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $36,000. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project?
Explanation / Answer
Particulars Year Cash Flow PVF PV Initial Investment 0 515000 1 515000 Working Capital 0 36000 1 36000 Present Value of Cash Outflows 551000 Tax Saving on Depreciation 1 to 5 36050 3.8897 1,40,224 Savings in operating cost ( net of tax) 1 to 5 126750 3.8897 4,93,019 Working Capital 5 36000 0.6499 23,396 Fixed asset scraped 5 50050 0.6499 32,527 Present value of cash inflows 6,89,167 Net Present Value 1,38,167
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.