Question
Your firm is contemplating the purchase of a new $1,554,000 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 $1,554,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $151,200 at the end of that time. You will be able to reduce working capital by $210,000 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 21 percent and your pretax cost savings are $687,500 per year. |
Requirement 1: |
What is the NPV of this project? |
(Click to select)$281,787.71$287,259.32$273,580.30$259,901.29$265,372.89 |
Requirement 2: |
What is the NPV if the pretax cost savings are $495,000 per year? |
(Click to select)$-109,431.05$-103,959.49$-114,902.60$-112,713.98$-106,148.11 |
Requirement 3: |
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? |
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