Dog Up! Franks is looking at a new sausage system with an installed cost of $502923....

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Dog Up! Franks is looking at a new sausage system with aninstalled cost of $502923. This cost will be depreciatedstraight-line to zero over the project's five-year life, at the endof which the sausage system can be scrapped for $72139. The sausagesystem will save the firm $192878 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $31765. If the tax rate is 32 percent and the discountrate is 8 percent, what is the NPV of this project? (Do not roundintermediate calculations and round your final answer to thenearest dollar amount. Omit the "$" sign and commas in yourresponse. For example, $123,456.78 should be entered as123457.)

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4.0 Ratings (791 Votes)

Time line		0	1	2	3	4	5



Cost of new machine		-502923
Initial working capital		-31765
=Initial Investment outlay		-534688



Savings			192878	192878	192878	192878	192878


-Depreciation	Cost of equipment/no. of years		-100584.6	-100584.6	-100584.6	-100584.6	-100584.6

=Pretax cash flows			92293.4	92293.4	92293.4	92293.4	92293.4
-taxes	=(Pretax cash flows)*(1-tax)		62759.512	62759.512	62759.512	62759.512	62759.512
+Depreciation			100584.6	100584.6	100584.6	100584.6	100584.6
=after tax operating cash flow			163344.112	163344.112	163344.112	163344.112	163344.11

reversal of working capital							31765

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)						49054.52
+Tax shield on salvage book value	=Salvage value * tax rate						0
=Terminal year after tax cash flows							80819.52

Total Cash flow for the period		-534688	163344.112	163344.112	163344.112	163344.112	244163.63
Discount factor=	(1+discount rate)^corresponding period	1	1.08	1.1664	1.259712	1.36048896	1.4693281
Discounted CF=	Cashflow/discount factor	-534688	151244.5481	140041.248	129667.822	120062.799	166173.67
NPV=	Sum of discounted CF=	172502

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Transcribed Image Text

Dog Up! Franks is looking at a new sausage system with aninstalled cost of $502923. This cost will be depreciatedstraight-line to zero over the project's five-year life, at the endof which the sausage system can be scrapped for $72139. The sausagesystem will save the firm $192878 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $31765. If the tax rate is 32 percent and the discountrate is 8 percent, what is the NPV of this project? (Do not roundintermediate calculations and round your final answer to thenearest dollar amount. Omit the "$" sign and commas in yourresponse. For example, $123,456.78 should be entered as123457.)