Question
Your firm is contemplating the purchase of a new $1,609,500 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 $1,609,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $156,600 at the end of that time. You will be able to reduce working capital by $217,500 (this is a one-time reduction). The tax rate is 35 percent and your required return on the project is 18 percent and your pretax cost savings are $482,750 per year. |
Requirement 1: |
What is the NPV of this project? |
Requirement 2: |
What is the NPV if the pretax cost savings are $670,450 per year? |
Requirement 3: |
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started