Question

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $725,000. This cost will be depreciated straight-line to zero over the project’s 7-year life, at the end of which the sausage system can be scrapped for $99,000. The sausage system will save the firm $211,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $63,000. If the tax rate is 24 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

r c140 A --J139/7 E H M Ne bine x fix B C D F G H I J K L Net Cost Deprecia Tax@24 Net Deprecia Operating working Net cash PVIF@ 138 Year savings tion | PBT % income tion cash flows capital Investment flows 10% 139 0 | (63,000)| (725,000) $ (788,000) 1.000 $ 1401 11 211.000 103,571 | 107,429 25,783 | 81,646 | 103,571 | 185,217 | $ 185,217 0.909 $ 141 2 211,000 103,571 107,429 25,783 81,646 103,571 185,217 $ 185,217 0.826 $ 142 31 211.000 103,571 | 107,429 25,783 | 81,646 | 103,571 | 185,217 | $ 185,217 0.751 $ 143 41 211.000 103,571 | 107,429 | 25,783 | 81,646 | 103,571 185,217 | $ 185,217 0.683 $ 144 5 211,000 103,571 107,429 25,783 81,646 103,571 185,217 $ 185,217 0.621 $ 145 61 211,000 | 103,571 | 107,429 25,783 | 81,646 | 103,571 185,217 | $ 185,217 0.564 $ 146 71 211.000 103,571 | 107,429 25,783 | 81,646 | 103,571 185,217 | $ 63,000 $ 75,240 | $ 323,457 0.513 $ 147 =99000*(1-24%) 148 Present value (788,000.00) 168,379.22 153,072.02 139,156.38 126,505.80 115,005.27 104,550.25 165,984.66 149 Net present value $184,653.60|

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