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value: 1.00 points

A proposed cost-saving device has an installed cost of $657,000. The device will be used in a five-year project but is classified as three-year MACRS (MACRS Table) property for tax purposes. The required initial net working capital investment is $50,000, the marginal tax rate is 40 percent, and the project discount rate is 14 percent. The device has an estimated Year 5 salvage value of $75,000.

What level of pretax cost savings do we require for this project to be profitable? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g.,32.16).)

Pretax savings

$

2)

Your firm is contemplating the purchase of a new $648,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $47,000 at the end of that time. You will save $167,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $42,000 at the beginning of the project. Working capital will revert back to normal at the end of the project.

If the tax rate is 30 percent, what is the IRR for this project?