1)

Dog Up! Franks is looking at a new sausage system with an installed cost of $608,400. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $93,600. The sausage system will save the firm $187,200 per year in pretax operating costs, and the system requires an initial investment in net working capital of $43,680.

Required:

If the tax rate is 32 percent and the discount rate is 12 percent, what is the NPV of this project?

rev: 09_18_2012

$-33,474.26

$-49,394.83

$-51,864.57

$-89,844.28

$-73,923.71

2)

Your firm is contemplating the purchase of a new $1,764,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $157,500 at the end of that time. You will save $693,000 before taxes per year in order processing costs and you will be able to reduce working capital by $139,499 (this is a one-time reduction).

Required :

If the tax rate is 33 percent, what is the IRR for this project? (Do not round your intermediate calculations.)

rev: 09_18_2012

	22.75%
	21.61%
	18.43%
	21.84%
	23.89%