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***Please do not round calculations or the final answers Kolby's Korndogs is looking at a new...

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***Please do not round calculations or the final answers

Kolby's Korndogs is looking at a new sausage system with aninstalled cost of $910,000. This cost will be depreciatedstraight-line to zero over the project?s seven-year life, at theend of which the sausage system can be scrapped for $105,000. Thesausage system will save the firm $193,000 per year in pretaxoperating costs, and the system requires an initial investment innet working capital of $51,000. Required: If the tax rate is 30percent and the discount rate is 6 percent, what is the NPV of thisproject?

Answer & Explanation Solved by verified expert
3.8 Ratings (756 Votes)
The net present value of this project is dependent on various factors They are historic cost of asset present value of post tax savings in operating costs due to introduction of the asset the sausage system required additional net working capital    See Answer
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Transcribed Image Text

***Please do not round calculations or the final answersKolby's Korndogs is looking at a new sausage system with aninstalled cost of $910,000. This cost will be depreciatedstraight-line to zero over the project?s seven-year life, at theend of which the sausage system can be scrapped for $105,000. Thesausage system will save the firm $193,000 per year in pretaxoperating costs, and the system requires an initial investment innet working capital of $51,000. Required: If the tax rate is 30percent and the discount rate is 6 percent, what is the NPV of thisproject?

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