Kolbys Korndogs is looking at a new sausage system with an installed cost of $92
ID: 2504505 • Letter: K
Question
Kolbys Korndogs is looking at a new sausage system with an installed cost of $924,000. This cost will be depreciated straight-line to zero over the projects seven-year life, at the end of which the sausage system can be scrapped for $109,000. The sausage system will save the firm $197,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000.
If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Kolbys Korndogs is looking at a new sausage system with an installed cost of $924,000. This cost will be depreciated straight-line to zero over the projects seven-year life, at the end of which the sausage system can be scrapped for $109,000. The sausage system will save the firm $197,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000.
Explanation / Answer
Kolbys Korndogs is looking at a new sausage system with an installed cost of $924,000. This cost will be depreciated straight-line to zero over the projects seven-year life, at the end of which the sausage system can be scrapped for $109,000. The sausage system will save the firm $197,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000.
If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Total Initial Investment = 924000 + 55000 = $979000
After tax operating cash flow each year = 197000*(1-0.30) + 924000/7 * 0.30 = $ 177500
Terminal Value = After tax salvae Value + Working Capital Realised Back
Terminal Vslue = 109000*0.7 + 55000
Terminal Value = 131300
NPV = -pv(6%,7,177500,131300) - 979000
NPV = $ 99194.70
If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.