Problem:
Kolby's Korndogs is looking at a new sausage system with an installed cost of $506,000. This cost will be depreciated straight-line to zero over the project's four-year life, at the end of which the sausage system can be scrapped for $98,000. The sausage system will save the firm $186,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $44,000.
Required:
If the tax rate is 40 percent and the discount rate is 9 percent, what is the NPV of this project?
Note: Provide support for your rationale.