2. 37.

Calculating required savings [LO 10.2] A proposed cost-saving device has an installed cost of $735 000. The device will be used in a five-year project but qualifies for depreciation on a straight-line basis over four years for tax purposes. The required initial net working capital investment is $55 000, the tax rate is 30 per cent and the project discount rate is 9 per cent. The device has an estimated Year 5 salvage value of $85 000. What level of pretax cost savings do we require for this project to be profitable?