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Kolbys Korndogs is looking at a new sausage system with an installed cost of $765,000

Business & Finance
Tutor: None Selected Time limit: 1 Day

Kolby's Korndogs is looking at a new sausage system with an installed cost of $765,000.  This cost will be depreciated straight-line zero over the projects 6 yr life at the end of which the sausage system can be scrapped for $100,000.  The sausage system will save the firm $188,000 per yr. in pretax operating costs, and the system requires an initial investment in NWC of $46,000. If the tax is 35% and the discount rate is 7% what is the NPV?

Apr 3rd, 2015

 NPV = $81,463.94

Annual savings 188,000 less 35% tax = 122,200 

Annual Depreciation, 127,500 x 35% = 44,625 annual tax savings 

Annual Cash flow, 166,825

Investment at T0 - 765,000 + 46,000 = 811,000 

Cash Flow - YR 1 - 5 = 166,825. Yr 6 - 166,825 + 46,000 + 100,000 = 312,825 

NPV, at 7% = $81463.94

https://www.easycalculation.com/finance/net-present-value.php


Apr 3rd, 2015

 It took lot of time to work this problem.I think you are aware that the market price for this question is $6-$7.If you are satisfied with my answer please give me good rating and a reasonable price 

Apr 3rd, 2015

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