Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $460,000. This cost will be depreciated using 100 percent bonus depreciation in the first year. At the end of the project, the sausage system can be scrapped for $55,000. The sausage system will save the firm $155,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000. If the tax rate is 21 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

solution: 1 2 3 4 5 0 - 460000 122450 122450 122450 122450 -29000 initial cost savings in after tax operating cost =155000*(1-0.21) changes in net working capital after tax salvage value =55000*(1-0.21) tax shiled on depreciation -460000*0.21 net cash flow x discount factor at 10% 122450 29000 43450 -489000 1.00000 - 489,000.00 107,985.77 96600 219050 0.90909 199,136.36 122450 0.82645 101,198.35 122450 0.75131 91,998.50 122450 0.68301 83,635.00 194900 0.62092 121,017.57 PV NPV