LO$214.$ Project Evaluation Dog Up$!$ Franks is looking at a new sausage system with an installed cost of $$385,000.$ This cost will be

depreciated straight$-$line to zero over the project's five$-$year life, at the end of which the sausage system can be scrapped for

$$60,000.$ The sausage system will save the firm $$135,000$ per year in pretax operating costs, and the system requires an initial

investment in net working capital of $$35,000.$ If the tax rate is $21$ percent and the discount rate is $10$ percent, what is the NPV

of this project?

LO$215.$ NPV and Bonus Depreciation In the previous problem, suppose the fixed asset actually qualifies for $100$ percent bonus

depreciation. All the other facts are the same. What is the new NPV$?$

LO$216.$ Project Evaluation Your firm is contemplating the purchase of a new $$535,000$ computer$-$based order entry system. The

system will be depreciated straight$-$line to zero over its five$-$year life. It will be worth $$30,000$ at the end of that time. You will

save $$165,000$ before taxes per year in order processing costs, and you will be able to reduce working capital by $$60,000$ at the

beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is $24$ percent, what

is the IRR for this project?

LO$217.$ Project Evaluation In the previous problem, suppose your required return on the project is $11$ percent and your pretax cost

savings are $$150,000$ per year. Will you accept the project? What if the pretax cost savings are only $$100,000$ per year?