Kolby's Korndogs is looking at a new sausage system with an installed cost of$655,000. This cost will be depreciated straight-line to zero over the project'sfive-year life, at the end of which it will have a zero market value. The sausagesystem will save the firm $183,000 per year in pretax operating costs, and thesystem requires an initial investment in net working capital of $35,000. If the taxrate is 21 percent and the discount rate is 8 percent, what is the NPV of thisproject?

NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…

Answered: Kolby's Korndogs 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 8P

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Kolby's Korndogs is looking at a new sausage system with an installed cost of $695,00o. 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 $93,000. The sausage system will save the firm $199,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $51,000. If the tax rate is 23 percent and the discount rate is 8 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
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