Dog Up! Franks is looking at a new sausage system with an installed cost of $525,000. The fixed asset will qualify for 100 percent bonus depreciation in the first year, at the end of which the sausage system can be scrapped for $85,000. The sausage system will save the firm $155,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $33,000. If the tax rate is 24 percent and the discount rate is 12 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
| Calculation of NPV of project | ||||
| Year | 0 | 1 | NPV | |
| Installed cost of new sausage system | -$525,000.00 | |||
| Invetsment in Net working capital | -$33,000.00 | |||
| Saving in operating cost (pre tax) | $155,000.00 | |||
| Tax @ 24% on operating cost savings | -$37,200.00 | |||
| Tax savings @ 24% on depreciation | $126,000.00 | |||
| Salvage value of new sausage system | $85,000.00 | |||
| Tax @ 24 on salvage value | -$20,400.00 | |||
| Recovery of net working capital | $33,000.00 | |||
| Net Cash flow | -$558,000.00 | $341,400.00 | ||
| X Discount factor @ 12% | 1 | 0.89285714 | ||
| Present Values | -$558,000.00 | $304,821.43 | -$253,178.57 | |
| NPV of the project = | -$253,178.57 | |||
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