Dog Up! Franks is looking at a new sausage system with an installed cost of $834,600....

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Dog Up! Franks is looking at a new sausage system with aninstalled cost of $834,600. This cost will be depreciatedstraight-line to zero over the project's 9-year life, at the end ofwhich the sausage system can be scrapped for $128,400. The sausagesystem will save the firm $256,800 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $59,920. If the tax rate is 34 percent and the discountrate is 9 percent, the NPV of this project is_______ $ . (Do notinclude the dollar sign ($). Negative amount should be indicated bya minus sign. Round your answer to 2 decimal places. (e.g.,32.16))

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3.6 Ratings (615 Votes)

Time line		0	1	2	3	4	5	6	7	8	9



Cost of new machine		-834600
Initial working capital		-59920
=Initial Investment outlay		-894520



Savings			256800	256800	256800	256800	256800	256800	256800	256800	256800


-Depreciation	Cost of equipment/no. of years		-92733.3333	-92733.33	-92733.33	-92733.33	-92733.33	-92733.33	-92733.3333	-92733.33	-92733.3

=Pretax cash flows			164066.6667	164066.67	164066.67	164066.67	164066.67	164066.67	164066.6667	164066.67	164066.7
-taxes	=(Pretax cash flows)*(1-tax)		108284	108284	108284	108284	108284	108284	108284	108284	108284
+Depreciation			92733.33333	92733.333	92733.333	92733.333	92733.333	92733.333	92733.33333	92733.333	92733.33
=after tax operating cash flow			201017.3333	201017.33	201017.33	201017.33	201017.33	201017.33	201017.3333	201017.33	201017.3

reversal of working capital											59920

+Proceeds from sale of equipment after tax	=selling price* ( 1 -tax rate)										84744
+Tax shield on salvage book value	=Salvage value * tax rate										-4E-11
=Terminal year after tax cash flows											144664

Total Cash flow for the period		-894520	201017.3333	201017.33	201017.33	201017.33	201017.33	201017.33	201017.3333	201017.33	345681.3
Discount factor=	(1+discount rate)^corresponding period	1	1.09	1.1881	1.295029	1.4115816	1.538624	1.6771001	1.828039121	1.9925626	2.171893
Discounted CF=	Cashflow/discount factor	-894520	184419.5719	169192.27	155222.26	142405.75	130647.47	119860.07	109963.3651	100883.82	159161.3
NPV=	Sum of discounted CF=	377235.87

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Transcribed Image Text

Dog Up! Franks is looking at a new sausage system with aninstalled cost of $834,600. This cost will be depreciatedstraight-line to zero over the project's 9-year life, at the end ofwhich the sausage system can be scrapped for $128,400. The sausagesystem will save the firm $256,800 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $59,920. If the tax rate is 34 percent and the discountrate is 9 percent, the NPV of this project is_______ $ . (Do notinclude the dollar sign ($). Negative amount should be indicated bya minus sign. Round your answer to 2 decimal places. (e.g.,32.16))