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Kolby’s Korndogs is looking at a new sausage system with an installed cost of $735,000. 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 $105,000. The sausage system will save the firm $204,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $35,000. If the tax rate is 34%, and the discount rate is 8%, what is the NPV of this project? put in numbers in chart form from years 0-5. Operating Cash Flow = (Annual savings)(1-T) + (Depreciation *T) After Tax Salvage Value = Sales proceeds-tax on gain Cash flows, Year 0,1,2,3,4,5 Purchase price Change in NWC Operating Cash Flow After tax salvage value Total Cash Flows PV of Cash Flows Net Present Value of Project
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