## Wednesday, 9 July 2014

### Dog Up! Franks is looking at a new sausage system with an installed cost of \$460,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for \$66,000. The sausage system will save the firm \$230,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of \$25,000. If the tax rate is 30 percent and the discount rate is 8 percent, what is the NPV of this project?

Dog Up! Franks is looking at a new sausage system with an installed cost of \$460,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for \$66,000. The sausage system will save the firm \$230,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of \$25,000. If the tax rate is 30 percent and the discount rate is 8 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 NPV \$

Explanation: