Question

Dog Up! Franks is looking at a new sausage system with an initial cost of $485,000 that will last for five years. The fixed asset will qualify for 100 percent bonus depreciation in the first year, at the end of which the sausage system can be scrapped for $69,000. The sausage system will save the firm $147,000 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 9 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 $ 124,507.69

Answer 1

solution: 1 2 3 4 5 0 -485000 116130 1161301 116130 1161300 -29000 116130| 29000 54510 initial cost savings in after tax operating cost =147000*(1-0.21) changes in net working capital after tax salvage value =69000*(1-0.21) tax shiled on depreciation -485000*0.21 net cash flow x discount factor at 9% PV NPV -514000 1.00000 - 514,000.00 85,421.34 101850 217980 0.91743 199,981.65 116130 0.84168 97,744.30 116130 0.77218 89,673.67 116130 0.70843 82,269.42 199640 0.64993 129,752.30