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Dog Up! Franks is looking at a new sausage system with an installed cost of $179,400....

Dog Up! Franks is looking at a new sausage system with an installed cost of $179,400. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the sausage system can be scrapped for $27,600. The sausage system will save the firm $55,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $12,880. If the tax rate is 25 percent and the discount rate is 10 percent, what is the NPV of this project?

  • $27,853.79

  • $39,538.40

  • $33,463.37

  • $41,515.32

  • $45,147.98

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Expert Solution

ANSWER; $45,147.98

Depreciation = 179,400 / 6 = 29,900

Salvage value in year 6 after tax = 27,600 x (1-0.25) = 20,700

jeff jeffy answered 1 year ago
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