Problem:
Kolby's Korndogs is looking at a new sausage system with an installed cost of $538,000. 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 $114,000. The sausage system will save the firm $202,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $60,000.
Required:
Question: If the tax rate is 40 percent and the discount rate is 9 percent, what is the NPV of this project?
Note: Show supporting computations in good form.