Question
Your firm is contemplating the purchase of a new $1,017,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year
Your firm is contemplating the purchase of a new $1,017,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $99,000 at the end of that time. You will be able to reduce working capital by $137,500 (this is a one-time reduction). The tax rate is 35 percent and your required return on the project is 22 percent and your pretax cost savings are $339,950 per year. |
What is the NPV of this project?
What is the NPV if the pretax cost savings are $472,150 per year?
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Could you show it step by step? Thank you!
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