Question

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 scrapped ausage system can be sold for $80,000. After adopting the sausage system, the firm will generate 4. Jake onal operating cash flows of $170,000 per year, and the system requires an initial investment in net working capital of $29,000 this project? . If the tax rate is 34% and the discount rate is 10%, what is the NPV of

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Answer 1

hi please find below solution.. please provide the rating..

	Annual depreciation =			=540000/5
	Annual depreciation =			108000
	Year	0	1	2	3	4	5
A	Initial investment	-540000
B	Working capital	-29000
C	Computation of operating cash flow
D	Post tax saving in cost = 170000*(1-34%)		112200	112200	112200	112200	112200
E	Tax shield on depreciation = 108000*34%		36720	36720	36720	36720	36720
F	Post tax salvage value =80000*(1-34%)						52800
G	Release of working capital						29000
H=A+B+C+D+E+F	Total cash flow	-569000	148920	148920	148920	148920	230720
I	PVIF @ 10%	1.0000	0.9091	0.8264	0.7513	0.6830	0.6209
J=H*I	present value	(569,000)	135,382	123,074	111,886	101,714	143,259	46,315
	NPV =	46,315
	therefore correct answer is option =	46,315