Dog Up Franks is looking at a new sausage system with an ins

Dog Up! Franks is looking at a new sausage system with an installed cost of $280,800. This cost will be depreciated straight-line to zero over the project\'s 8-year life, at the end of which the sausage system can be scrapped for $43,200. The sausage system will save the firm $86,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $20,160. Required: If the tax rate is 31 percent and the discount rate is 13 percent, what is the NPV of this project?

NPV of project is $ 56,134.87

Working:

Step-1:Calculation of annual cash flow

	Saving				$ 86,400
	Depreciation				-35,100
	Profit before tax				51,300
	Tax				-15,903
	Net Income				35,397
	Depreciation				35,100
	Annual cash flow				70,497

	Working:

	Straight Line depreciation		=	(Cost-Salvage Value)/Useful Life
				=	(280800-0)/8
				=	35,100

Step-2:Calculation of NPV

	Year	1	2	3	4	5	6	7	8		Total
	Operating cash flow	70,497	70,497	70,497	70,497	70,497	70,497	70,497	70,497
	Release of net working caital								20,160
	After tax sale of asset								29,808

	Cash flow	70,497	70,497	70,497	70,497	70,497	70,497	70,497	1,20,465
	Discount factor	0.8850	0.7831	0.6931	0.6133	0.5428	0.4803	0.4251	0.3762
	Present Value	62,386.73	55,209.49	48,857.96	43,237.13	38,262.95	33,861.02	29,965.50	45,314.10		3,57,094.87

	Less: Initial Investment

	Cost of fixed assets									2,80,800
	Cost of Net Woring Capital								20,160	3,00,960.00

	NPV										56,134.87

	Working:

	After tax sale of asset	=	43200*(1-0.31)
		=	29,808

$Dog Up! Franks is looking at a new sausage system with an installed cost of $280,800. This cost will be depreciated straight-line to zero over the project\'s 8-$

Dog Up Franks is looking at a new sausage system with an ins

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