Kolby’s Korndogs is looking at a new sausage system with an installed cost of $635,000. This cost will be depreciated straight-line to zero over the project’s five-year life, at the end of which the sausage system can be scrapped for $99,000. The sausage system will save the firm $187,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $45,000.
What is the aftertax salvage value of the equipment?
What is the annual operating cash flow?
If the tax rate is 34 percent and the discount rate is 8 percent, what is the NPV of this project?