Project Evaluation

Kolby's Korndogs is looking at a new sausage system with an installed cost of

$$655,000.$ This cost will be depreciated straight$-$line to zero over the project's five$-$

year life, at the end of which it will have a zero market value. The sausage system will

save the firm $$183,000$ 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 $21$ percent and

the discount rate is $8$ percent, what is the NPV of this project?

Question $13$

Project Evaluation

Your firm is contemplating the purchase of a new $$410,000$ computer$-$based order

entry system. The system will be depreciated straight$-$line to zero over its five$-$year

life. You will save $$125,000$ before taxes per year in order processing costs, and you

will be able to reduce working capital by $$35,000$ at the beginning of the project.

Working capital will revert back to normal at the end of the project. If the tax rate is

$21$ percent, what is the IRR for this project?