Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $62,000 at the end of that time. You will be able to reduce working capital by $87,000 (this is a one-time reduction). The tax rate is 24 percent and the required return on the project is 12 percent.

If the pretax cost savings are $150,000 per year, what is the NPV of this project?

Will you accept or reject the project?

multiple choice 1

• Reject

• Accept

If the pretax cost savings are $115,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign.

Will you accept or reject the project?

multiple choice 2

• Reject

• Accept

At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?