Dog Up! Franks is looking at a new sausage system with an installed cost of $438,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $69,000. The sausage system will save the firm $129,000 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 35 percent and the discount rate is 9 percent, what is the NPV of this project?
Depreciation = Cost of the Project / Useful life years = $438,000 / 5 = $87,600
Cash flow at year 0 = Cost of Project + Investment in NWC = $438,000 + $29,000 = $467,000
Annual Cash Flow(Year 1 - 5) = [Savings in Cost * (1 - t)] + [Depreciation * t]
= [$129,000 * (1 - 0.35)] + [$87,600 * 0.35]
= $83,850 + $30,660 = $114,510
Additional Cash Flow at year 7 = After-tax Salvage Value + Recovery of NWC
= [$69,000 * (1 - 0.35)] + $29,000 = $44,850 + $29,000 = $73,850
NPV = PV of Cash Inflows - PV of Cash Outflows
= [$114,510 * {1 - (1 + 0.09)-5} / 0.09] + [$73,850 / (1 + 0.09)5] - $467,000
= [$114,510 * 3.8897] + [$73,850 / 1.5386] - $467,000
= $445,403.97 + $47,997.43 - $467,000 = $26,401.40
Dog Up! Franks is looking at a new sausage system with an installed cost of $438,000....
Dog Up! Franks is looking at a new sausage system with an installed cost of $540,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $80,000. The sausage system will save the firm $170,000 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 34 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $435,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $49,000. The sausage system will save the firm $137,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,000. If the tax rate is 21 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $500,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $75,000. The sausage system will save the firm $150,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $30,500. If the tax rate is 24 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $514,960. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $72,229. The sausage system will save the firm $175,948 per year in pretax operating costs, and the system requires an initial investment in net working capital of $37,379. If the tax rate is 37 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $834,600. This cost will be depreciated straight-line to zero over the project's 8-year life, at the end of which the sausage system can be scrapped for $128,400. The sausage system will save the firm $256,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $59,920. If the tax rate is 24 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $514,831. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $77,531. The sausage system will save the firm $205,324 per year in pretax operating costs, and the system requires an initial investment in net working capital of $35,268. If the tax rate is 36 percent and the discount rate...
Dog Up! Franks is looking at a new sausage system with an installed cost of $421,200. This cost will be depreciated straight-line to zero over the project's 10-year life, at the end of which the sausage system can be scrapped for $64,800. The sausage system will save the firm $129,600 per year in pretax operating costs, and the system requires an initial investment in net working capital of $30,240. Required: If the tax rate is 32 percent and the discount...
Dog Up! Franks is looking at a new sausage system with an installed cost of $312,000. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $48,000. The sausage system will save the firm $96,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $22,400. If the tax rate is 33 percent and the discount rate...
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...
Dog Up! Franks is looking at a new sausage system with an installed cost of $455,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $57,000. The sausage system will save the firm $161,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $26,000. If the tax rate is 25 percent and the discount rate...