Question
Your firm is contemplating the purchase of a new $1,535,500 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 $1,535,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $149,400 at the end of that time. You will be able to reduce working capital by $207,500 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 23 percent and your pretax cost savings are $709,650 per year. |
Requirement 1: |
What is the NPV of this project? |
(Click to select) $266,313.33 $260,822.33 $288,277.32 $282,786.32 $274,549.82 |
Requirement 2: |
What is the NPV if the pretax cost savings are $510,950 per year? |
(Click to select)$-104,323.99 $-109,814.73 $-113,109.17 $-106,520.29 $-115,305.47 |
Requirement 3: |
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? |
(Click to select) $539,333.53 $486,927.46 $596,105.48 $12,951.89 $567,719.51 |
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