Question

Calculate the NPV of project

Kolby’s Korndogs is looking at a new sausage system with an installed cost of $506,000. This cost will be depreciated straight-line to zero over the project’sfour-year life, at the end of which the sausage system can be scrapped for $98,000. The sausage system will save the firm $186,000 per year in pretax operating costs,and the system requires an initial investment in net working capital of $44,000.

If the tax rate is 40 percent and the discount rate is 9 percent, what is the NPV of this project?

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