Question

# Dog Up! Franks is looking at a new sausage system with an installed cost of \$525,000....

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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