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Your firm is contemplating the purchase of a new $1,110,000 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 $1,110,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $108,000 at the end of that time. You will be able to reduce working capital by $150,000 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 19 percent and your pretax cost savings are $339,900 per year. Requirement 1: What is the NPV of this project? $-80,079.11 Requirement 2: What is the NPV if the pretax cost savings are $472,100 per year? $200,044.89 Requirement 3: At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? $377,692.04
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