Question

calculating NPV: project evaluation

Franks is looking at a new sausage system with an installed cost of $420,000. This cost will be depreciated straight line to zero over the projects five year life, atthe end of which the sausage system can be scrapped for $60,000. The sausage system will save the firm $135,000 per year in pretax operating costs, and the systemrequires an initial investment in net working capital of $28,000. If the tax rate is 34 percent and the discount rate is 10 percent what it the NPV of this project?

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