A proposed cost-saving device has an installed cost of $640,000. The device will be used in a

Question:

A proposed cost-saving device has an installed cost of $640,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $55,000, the marginal tax rate is 35 percent, and the project is 12 percent. The device has an estimated Year 5 of $60,000. What level of pretax cost savings do we require for this project to be profitable?

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