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

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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?

Nov 18th, 2017

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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Nov 18th, 2017
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Nov 18th, 2017
Nov 18th, 2017
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