Your firm is contemplating the purchase of a new $$370,000$ computer$-$based order entry system. The system will be depreciated straight$-$line to zero over its $5-$year life. It will be worth $$36,000$ at the end of that time. You will be able to reduce working capital by $$50,000($this is a one$-$time reduction$).$ The tax rate is $24$ percent and your required return on the project is $22$ percent and your pretax cost savings are $$159,400$ per year.

a$.$ What is the NPV of this project?

b$.$ What is the NPV if the pretax cost savings are $$114,750$ per year?

c$.$ At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it$?$Your firm is contemplating the purchase of a new $$370,000$ computer$-$based order entry

system. The system will be depreciated straight$-$line to zero over its $5-$year life. It will be

worth $$36,000$ at the end of that time. You will be able to reduce working capital by

$$50,000($this is a one$-$time reduction$).$ The tax rate is $24$ percent and your required

return on the project is $22$ percent and your pretax cost savings are $$159,400$ per year.

a$.$ What is the NPV of this project?

NPV

$$69,394\mathrm{.}23$

$$67,312\mathrm{.}41$

$$65,924\mathrm{.}52$

$$72,863\mathrm{.}95$

b$.$ What is the NPV if the pretax cost savings are $$114,750$ per year?

NPV

$$-27,780\mathrm{.}52$

$$-26,947\mathrm{.}10$

$$-26,391\mathrm{.}49$

$$-26,391\mathrm{.}49$

c$.$ At what level of pretax cost savings would you be indifferent between accepting the

project and not accepting it$?$

Cost savings