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Dog Up! Franks is looking at a new sausage system with an installed cost of $530,400....

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Finance

Dog Up! Franks is looking at a new sausage system with aninstalled cost of $530,400. This cost will be depreciatedstraight-line to zero over the project's 9-year life, at the end ofwhich the sausage system can be scrapped for $81,600. The sausagesystem will save the firm $163,200 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $38,080.

  

If the tax rate is 21 percent and the discount rate is 10percent, what is the NPV of this project?

Answer & Explanation Solved by verified expert
4.4 Ratings (585 Votes)
Annual depreciation 530400 9 589333333 Initial investment Cost net working capital Initial investment 530400 38080 568480 OCF from year 1 to    See Answer
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Transcribed Image Text

Dog Up! Franks is looking at a new sausage system with aninstalled cost of $530,400. This cost will be depreciatedstraight-line to zero over the project's 9-year life, at the end ofwhich the sausage system can be scrapped for $81,600. The sausagesystem will save the firm $163,200 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $38,080.  If the tax rate is 21 percent and the discount rate is 10percent, what is the NPV of this project?

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