Dog Up! Franks is looking at a new sausage system with an installed cost of $569,400....

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Dog Up! Franks is looking at a new sausage system with aninstalled cost of $569,400. This cost will be depreciatedstraight-line to zero over the project's 6-year life, at the end ofwhich the sausage system can be scrapped for $87,600. The sausagesystem will save the firm $175,200 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $40,880.

Required:
If the tax rate is 33 percent and the discount rate is 12percent, what is the NPV of this project?
Options
$21,801.46
$41,970.38
$71,705.57
$51,536.65
$54,113.49

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3.5 Ratings (279 Votes)

Depreciation under Straight line method per year Cost life of asset 569400 6 94900 Calculation of NPV of the project Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 See Answer

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Dog Up! Franks is looking at a new sausage system with aninstalled cost of $569,400. This cost will be depreciatedstraight-line to zero over the project's 6-year life, at the end ofwhich the sausage system can be scrapped for $87,600. The sausagesystem will save the firm $175,200 per year in pretax operatingcosts, and the system requires an initial investment in net workingcapital of $40,880. Required:If the tax rate is 33 percent and the discount rate is 12percent, what is the NPV of this project?Options$21,801.46$41,970.38$71,705.57$51,536.65$54,113.49