Question

Patty's Pickles is looking at a new pickle packaging system with an installed cost of $490,000. This cost will be depreciated straight-line to zero over the project's 7-year life, at the end of which the packaging system can be scrapped for $50,000. The pickle packaging system will save the firm $120,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $25,000. All of the net working capital will be recovered at the end of the project. The tax rate is 21 percent and the discount rate is 12 percent. What is the net present value of this project?

Answer 1

YEAR calculation [-490000-25000 ] (120000*0.79)+(490000/7*0.21) Cash flow $515,000 $109,500 $109,500 $109,500 $109,500 $109,500 $109,500 $174,000 pv @ 12% 1.000 0.8929 0.7972 0.7118 0.6355 0.5674 0.5066 0.4523 discounted cash flows -$515,000.00 $97,767.86 $87,292.73 $77,939.94 $69,589.23 $62,133.24 $55,476.11 $78,708.76 $13,907.87 7 (120000*0.79) +(490000/7*0.21)+25000+(50000*0.79) NPV