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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 $
1 Answer
- Anonymous1 decade agoFavorite 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)