Number 7 on page 263 – Project Evaluation – Franks is looking at a new sausage system with an installed cost of $430,000. This cost will be depreciated straight-line to zero over the projects five-year life, at the end of which the sausage system can be scrapped for $40,000. The sausage system will save the firm $130,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $15,000. If the tax rate is 34 percent and the discount rate is 10 percent, what is the NPV of this project? DepreciationCost of MachineScrap VaalueTotal outflowSaving in operating costInvestment in NWC 4300004000039000039000078000130000 Tax @ 34%15000 Total outflow Tax on saving net Saving…
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