Question

Dog Up! Franks is looking at a new sausage system with an installed cost of $450,000. 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 $55,000. The sausage system will save the firm $140,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $25,500. If the tax rate is 24 percent and the discount rate is 12 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.) NPV

Answer 1

rate positively .. let me know if you need any clarification..

computation of NPV
year	0	1	2	3	4	5
Initial investment	-450000
Working capital	-25500					25500
Operating cash flow
Saving		140000	140000	140000	140000	140000
Depreciation		90000	90000	90000	90000	90000
Saving after depreciation		50000	50000	50000	50000	50000
Tax @ 24%		12000	12000	12000	12000	12000
Saving after tax		38000	38000	38000	38000	38000
Cash flow		128000	128000	128000	128000	128000
Terminal cash flow						41800
55000*(1-24%)
net cash flow	-475500	128000	128000	128000	128000	195300
PVIF @ 12%	1	0.892857	0.797194	0.71178	0.635518	0.567427
present value	-475500	114285.7	102040.8	91107.87	81346.31	110818.5	24099.18
Therefore answer =	24099.18