1. Kolby’s Korndogs is looking at a new sausage system with an installed cost of $530,000. 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 $110,000. The sausage system will save the firm $198,000 per year in pretax operating costs, and the system requires an initial investment in net working capital of $56,000.
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If the tax rate is 40 percent and the discount rate is 9 percent, what is the NPV of this project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)
2. McGilla Golf has decided to sell a new line of golf clubs. The clubs will sell for $731 per set and have a variable cost of $361 per set. The company has spent $151,000 for a marketing study that determined the company will sell 75,100 sets per year for seven years. The marketing study also determined that the company will lose sales of 8,600 sets per year of its high-priced clubs. The high-priced clubs sell at $1,210 and have variable costs of $550. The company will also increase sales of its cheap clubs by 11,100 sets per year. The cheap clubs sell for $341 and have variable costs of $126 per set. The fixed costs each year will be $11,210,000. The company has also spent $1,010,000 on research and development for the new clubs. The plant and equipment required will cost $24,570,000 and will be depreciated on a straight-line basis. The new clubs will also require an increase in net working capital of $1,510,000 that will be returned at the end of the project. The tax rate is 35 percent, and the cost of capital is 15 percent.
Required:
Calculate the payback period, the NPV, and the IRR. (Do not round intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16).)
Payback period years
Net present value $
Internal rate of return %
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