Kolby’s Korndogs is looking at a new sausage system with an installed cost of $8
ID: 2712153 • Letter: K
Question
Kolby’s Korndogs is looking at a new sausage system with an installed cost of $882,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $97,000. The sausage system will save the firm $185,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $43,000.
Required: If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project?
Explanation / Answer
NPV OF THE PROJECT => $ 116023
As nothing is given about release of working capital so not be shown in cash inflows,
Particulars cash flows tax effect aftertax years discounting factor @ 6% present values Initial Investment 882000 - 882000 0 1 (882000) Working Capital 43000 - 43000 0 1 (43000) Savings 185000 70% 129500 1-7 5.582 722869 Depreciation 126000 30% 37800 1-7 5.582 211000 Salvage value 97000 70% 67900 7 0.665 45154 NPV 116023Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.