Problem:
Kolby's Korndogs is looking at a new sausage system with an installed cost of $789,000. This cost will be depreciated straight-line to zero over the project's six-year life, at the end of which the sausage system can be scrapped for $108,000. The sausage system will save the firm $196,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $54,000.
Requirement:
Question: If the tax rate is 35 percent and the discount rate is 7 percent, what is the NPV of this project?
Note: Provide thorough explanation of the given question.