Dog Up! Franks is looking at a new sausage system with an installed cost of $730

Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $730000. This cost will be depreciated straight-line to 71000 over the project's 7-year life, at the end of which the sausage system can be scrapped for $105000. The sausage system will save the firm $234000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $52000. If the tax rate is 0.37 and the discount rate is 0.12, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)

Explanation / Answer

Saving in Operating cost =234000*(1-0.37) 147420.00 Depreciation Tax Saving =((730000-71000)/7)*.37 34832.86 Net Working Capital recature 52000.00 After Tax Salvage value=105000-(105000-71000)*0.37 92420.00 the total cash flow in year 7 326672.86

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