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Dog Up$!$ Franks is looking at a new sausage system with an installed cost of $$460,000.$ This cost will be depreciated straight$-$line to zero over the project's five$-$year life, at the end of which the sausage system can be scrapped for $$55,000.$ The sausage system will save the firm $$155,000$ per year in pretax operating costs, and the system requires an initial investment in net working capital of $$29,000.$ If the tax rate is $21$ percent and the discount rate is $10$ percent, what is the NPV of this project?

$NPV=$$$93,405\mathrm{.}59$

Peloton is contemplating the purchase of a new $$485,000$ computer$-$based order entry system. The system will be depreciated straight$-$line to zero over its five$-$year life. It will be worth $$35,000$ at the end of that time. The system will save $$140,000$ before taxes per year in order processing costs, but Peloton must invest an additional $$25,000$ in working capital. If the tax rate is $24$ percent, what is the IRR for this project?

IRR $=10\mathrm{.}99\%$

Suzy B$.$ is a pilot retiring from American Airlines and wants to open a charter flight business in the Caribbean. The Cessna Caravan plane she wants to purchase is $$325,000$ and will require $$15,000$ of cabin modifications. She will need working capital of $$50,000$ to open the business. She expects revenues of $$125,000$ per year and expenses of $$35,000$ per year and wants to sell out and retire for good in five years. Given how the Caravan historically retains its value, she expects it will still be worth $$250,000$ when she retires. The plane will be depreciated straight$-$line to a zero salvage value over $10$ years, based on current tax laws. The firm's marginal tax rate is $30\%$ and the required rate of return is $11\%.$

$NPV=$$$44,332\mathrm{.}23$

Rudy's Boat Rentals is considering replacing its $5-$year old Lowe fishing boats with top$-$of$-$the$-$line Boston Whalers. The Lowe boats have five years of remaining life and will be depreciated at $$2,000$ per year over the next five years, if they are not replaced. At the end of the remaining five years they are expected to have zero salvage value. The boats can currently be sold for $$12,000$ each. The new Boston Whalers would each cost $$25,000$ and because of expected increases in rentals, would have an expected life of only five years. No additional working capital would be required. The boats would be depreciated straight$-$line to a zero salvage value. They could actually be sold for $$12,500$ in five years. The new boats are expected to increase revenue by $$5,000$ per year and have an associated increase in expenses of $$1,000$ per year. Rudy's required rate of return is $11\%$ and his marginal tax rate is $40\%.$ Should he make the replacement? Conduct your analysis on the replacement of one boat.

$NPV=$$$3,956\mathrm{.}11$