Question

13. Project Evaluation [LO1] Dog Up! Franks is looking at a new sausage system with an installed cost of $540,000. This cost will be depre- ciated 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

Answer 1

C145 - : X fix --J144/5 A B C D E F G H I J K L M Net Net after- Cost Depreciati Net Depreciati Operating working tax cash PVIF@ 143 Year savings on PBT Tax@34% income on cash flows capital Investment flow 10% | Present value 144 0 $ -29,000 $-540,000 $-569,000 1.000 $ (569,000) 145 1 $ 170,000 $ 108,000 $ 62,000 $ 21,080 $ 40,920 $ 108,000 $ 148,920 $ $ 148,920 0.909 $ 135,382 2 $ 170,000 $108,000 $ 62,000 $ 21,080 $ 40,920 $ 108,000 $ 148,920 $ . $ 148,920 0.826 $ 123,074 147 3 $ 170,000 $ 108,000 $ 62,000 $ 21,080 $ 40,920 $ 108,000 $ 148,920 $ - $ 148,920 0.751 $ 111,886 148 4 $ 170,000 $ 108,000 $ 62,000 $ 21,080 $ 40,920 $ 108,000 $ 148,920 $ - $ 148,920 0.683 $ 101,714 149 5 $ 170,000 $ 108,000 $ 62,000 $ 21,080 $ 40,920 $ 108,000 $ 148,920 $ 29,000 $ 52,800 $ 230,720 0.621 $ 143,259 =80000*(1-34%) 151 Net present value $ 46,315 146 150

*Please rate thumbs up