Question: Dog up! Franks is looking at a new sausage system with an installed cost of $440,000. 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 $51,000. The sausage system will save the firm $138,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,500. If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project?

Cornerstones of Cost Management (Cornerstones Series)
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ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
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Chapter19: Capital Investment
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NPV?

Question:
Dog up! Franks is looking at a new sausage system with an installed cost of
$440,000. 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 $51,000. The sausage system will save the firm $138,000 per
year in pretax operating costs, and the system requires an initial
investment in net working capital of $24,500.
If the tax rate is 22 percent and the discount rate is 10 percent, what is the
NPV of this project?
Transcribed Image Text:Question: Dog up! Franks is looking at a new sausage system with an installed cost of $440,000. 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 $51,000. The sausage system will save the firm $138,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $24,500. If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project?
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