Question
In: Finance
Dog Up! Franks is looking at a new sausage system with an installed cost of $873,600....
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Dog Up! Franks is looking at a new sausage system with an installed cost of $873,600. This cost will be depreciated straight-line to zero over the project's 10-year life, at the end of which the sausage system can be scrapped for $134,400. The sausage system will save the firm $268,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $62,720. |
| If the tax rate is 24 percent and the discount rate is 9 percent, what is the NPV of this project? |
Solutions
Expert Solution
| Years | Cash Flow | PV of Cash Flow |
| 0 | -936320 | ($936,320.00) |
| 1 | 222029 | $203,696.15 |
| 2 | 222029 | $186,877.20 |
| 3 | 222029 | $171,446.97 |
| 4 | 222029 | $157,290.80 |
| 5 | 222029 | $144,303.49 |
| 6 | 222029 | $132,388.52 |
| 7 | 222029 | $121,457.36 |
| 8 | 222029 | $111,428.77 |
| 9 | 222029 | $102,228.23 |
| 10 | 222029 | $93,787.36 |
| 10 (Working Capital) | 62720 | $26,493.61 |
| 10 (Salvage value less tax) | 102144 | $43,146.73 |
| NPV | $558,225.17 |
| Cost Saving | 268800 |
| Less: Depreciation | 73920 |
| Profit Before Tax | 194880 |
| Less: Tax 24% | 46771 |
| Profit After Tax | 148109 |
| Add: Depreciation | 73920 |
| Cash Inflow | 222029 |
The Present Value of cash flow can be calculated by using the formula of PV in excel
where
rate = 9%
pmt -= 0
I hope this clear your doubt.
Do give Thumbs up if you find this helpful.
jeff jeffy answered 1 year agoRelated Solutions
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