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NPV Project Evaluation?

I have a few problems like this to do and there isn't an example of it in the book and we didn't go over it in class. Any help you could give me would be great!

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $912,600. This cost will be depreciated straight-line to zero over the project’s 5-year life, at the end of which the sausage system can be scrapped for $140,400. The sausage system will save the firm $280,800 per year in pretax operating costs, and the system requires an initial investment in net working capital of $65,520. If the tax rate is 34 percent and the discount rate is 13 percent, the NPV of this project is $

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  • Anonymous
    1 decade ago
    Favorite Answer

    Cash outflows

    initial inv -912600

    inv in wc -65520

    net cash outflow -978120

    Cash Inflows

    savings in op costs (pre-tax) 280800 (each yr)

    tax 34%

    savings in op costs (post-tax) 185328 (each yr)

    scrap value 140400 (fifth year)

    net cash inflow 185328 (yrs 1-4) 325728 (yr 5)

    pvf @ 13% 0.885 0.783 0.693 0.613 0.543

    disc Cfs 164007.07 (yr 1)

    145139.0085 (yr 2)

    128441.6005 (yr 3)

    113665.1332 (yr 4)

    176792.1084 (yr 5)

    net cash inflow 728044.9303

    NPV -250075.0697

    negative npv....meaning not a good investment...

    ( i hope i have done right)

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