The Sausage Hut Is Looking at a New Sausage System

question 95

Multiple Choice

The Sausage Hut is looking at a new sausage system with an installed cost of $438,000. This cost will be depreciated straight-line to zero over the project's 4-year life, at the end of which the sausage system can be scrapped for $69,000. The sausage system will save the firm $129,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $29,000, which will be recouped at project end. If the tax rate is 35 percent and the discount rate is 9 percent, what is the NPV of this project?

• A) -$18,870
• B) -$6,320
• C) $2,560
• D) $14,410
• E) $26,880

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