10.

Dog Up! Franks is looking at a new sausage system with an installed cost of $553,800. 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 $85,200. The sausage system will save the firm $170,400 per year in pretax operating costs, and the system requires an initial investment in net working capital of $39,760.

If the tax rate is 23 percent and the discount rate is 11 percent, what is the NPV of this project?

• $50,454.49

• $25,283.49

• $9,119.12

• $64,216.27

11.

Your firm is contemplating the purchase of a new $481,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $46,800 at the end of that time. You will be able to reduce working capital by $65,000 (this is a one-time reduction). The tax rate is 22 percent and your required return on the project is 23 percent and your pretax cost savings are $209,650 per year.

a. What is the NPV of this project?

b. What is the NPV if the pretax cost savings are $150,950 per year?

c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?