Summer Tyme, Inc., is considering a new 4-year expansion project that requires an initial fixed asset investment of $3.888 million. The fixed asset will be depreciated straight-line to zero over its 4-year tax life, after which time it will be worthless. The project is estimated to generate $3,456,000 in annual sales, with costs of $1,382,400.

Required:

If the tax rate is 32 percent, what is the OCF for this project?

$1,635,034

$1,721,088

$749,088

$2,073,600

$1,807,142

Dog Up! Franks is looking at a new sausage system with an installed cost of $889,200. This cost will be depreciated straight-line to zero over the project's 7-year life, at the end of which the sausage system can be scrapped for $136,800. The sausage system will save the firm $273,600 per year in pretax operating costs, and the system requires an initial investment in net working capital of $63,840.

Required:

If the tax rate is 33 percent and the discount rate is 8 percent, what is the NPV of this project?

$256,848.19

$325,845.02

$336,918.56

$310,328.59

$283,438.17