Dog Up! Franks is looking at a new sausage system with an installed cost of $863,006. Thiscost will be depreciated straight-line to 68,640 over the project's 7-year life, at the end ofwhich the sausage system can be scrapped for $130,815. The sausage system will save thefirm $249,240 per year in pretax operating costs, and the system requires an initialinvestment in net working capital of $61,737. If the tax rate is 0.29 and the discount rate is0.1, what is the total cash flow in year 7? (Make sure you enter the number with theappropriate +/- sign)

Free cash flow is that amount which is earned by the investor from the project. It is the net amount…

Answered: Dog Up! Franks is looking at a new…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Friedman Company is considering installing a new IT system. The cost of the new system is estimated to be 2,250,000, but it would produce after-tax savings of 450,000 per year in labor costs. The estimated life of the new system is 10 years, with no salvage value expected. Intrigued by the possibility of saving 450,000 per year and having a more reliable information system, the president of Friedman has asked for an analysis of the projects economic viability. All capital projects are required to earn at least the firms cost of capital, which is 12 percent. Required: 1. Calculate the projects internal rate of return. Should the company acquire the new IT system? 2. Suppose that savings are less than claimed. Calculate the minimum annual cash savings that must be realized for the project to earn a rate equal to the firms cost of capital. Comment on the safety margin that exists, if any. 3. Suppose that the life of the IT system is overestimated by two years. Repeat Requirements 1 and 2 under this assumption. Comment on the usefulness of this information.
Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Ham and Egg Restaurant is considering an investment in a new oven that has a cost of $60,000, with annual net cash flows of $9,950 for 8 years. The required rate of return is 6%. Compute the net present value of this investment to determine whether or not you would recommend that Ham and Egg invest in this oven.
Dog Up! Franks is looking at a new sausage system with an installed cost of $705,000. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the sausage system can be scrapped for $95,000. The sausage system will save the firm $203,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000. If the tax rate is 25 percent and the discount rate is 10 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. es NPV 4
Dog Up! Franks is looking at a new sausage system with an installed cost of $514,859. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the sausage system can be scrapped for $76,951. The sausage system will save the firm $206,321 per year in pretax operating costs, and the system requires an initial investment in net working capital of $34,961. If the tax rate is 37 percent and the discount rate is 11 percent, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to the nearest dollar amount. Omit the "$" sign and commas in your response. For example, $123,456.78 should be entered as 123457.)
Dog Up! Franks is looking at a new sausage system with an installed cost of $705,000. This cost will be depreciated straight-line to zero over the project's 6-year life, at the end of which the sausage system can be scrapped for $95,000. The sausage system will save the firm $203,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $55,000. If the tax rate is 25 percent and the discount rate is 10 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV
Dog Up! Franks is looking at a new sausage system with an installed cost of $521,820. This cost will be depreciated straight-line to 37,683 over the project's 7-year life, at the end of which the sausage system can be scrapped for $91,336. The sausage system will save the firm $250,252 per year in pretax operating costs, and the system requires an initial investment in net working capital of $48,182. If the tax rate is 0.27 and the discount rate is 0.11, what is the total cash flow in year 7? (Make sure you enter the number with the appropriate +/- sign)
Dog Up! Franks is looking at a new sausage system with an installed cost of $465,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $61,000. The sausage system will save the firm $143,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $27,000. If the tax rate is 22 percent and the discount rate is 10 percent, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV
Dog Up! Franks is looking at a new sausage system with an installed cost of $411,500. This cost will be depreciated straight-line to zero over the project's seven-year life, at the end of which the sausage system is expected to be sold for $35,000 cash. No bonus depreciation will be taken. The sausage system will save the firm $129,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $22,500. All of the net working capital will be recovered at the end of the project. The tax rate is 23 percent and the discount rate is 13.2 percent. What is the net present value of this project?
Dog Up! Franks is looking at a new sausage system with an installed cost of $685,000. 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 $91,000. The sausage system will save the firm $195,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $47,000. What is the aftertax salvage value of the equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Aftertax salvage value What is the annual operating cash flow? Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. OCF If the tax rate is 21 percent and the discount rate is 10 percent, what is the NPV of this project? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. NPV
Dog Up! Franks is looking at a new sausage system with an installed cost of $694,200. This cost will be depreciated straight-line to zero over the project's 9-year life, at the end of which the sausage system can be scrapped for $106,800. The sausage system will save the firm $213,600 per year in pretax operating costs, and the system requires an initial investment in net working capital of $49,840. If the tax rate is 22 percent and the discount rate is 8 percent, what is the NPV of this project?
Frank’s Franks is looking at a new sausage system with an installed cost of $397,800.This cost will be depreciated straight-line to zero over the project's 7-year life, at the endof which the sausage system can be scrapped for $61,200. The sausage system will savethe firm $122,400 per year in pretax operating costs, and the system requires an initialinvestment in net working capital of $28,560. All of the net working capital will berecovered at the end of the project. The tax rate is 33 percent and the discount rate is 9percent. What is the net present value of this project?

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