Kolby’s Korndogs is looking at a new sausage system with an installed cost of $910,000. This cost will be depreciated straight-line to zero over the project’s seven-year life, at the end of which the sausage system can be scrapped for $105,000. The sausage system will save the firm $193,000 per year in pre tax operating costs, and the system requires an initial investment in net working capital of $51,000.
Required:
If the tax rate is 30 percent and the discount rate is 6 percent, what is the NPV of this project?