Kolby’s Korndogs is looking at a new sausage system with an installed cost of $6

Question

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $107,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $53,000.

If the tax rate is 34 percent and the discount rate is 8 percent, what is the NPV of this project?

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $655,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $107,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $53,000.

If the tax rate is 34 percent and the discount rate is 8 percent, what is the NPV of this project?

Explanation / Answer

NPV =

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