Question
Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year
Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will be able to reduce working capital by $78,000 (this is a one-time reduction). The tax rate is 35 percent and the required return on the project is 15 percent. If the pretax cost savings are $203,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV $ _______Will you accept or reject the project? Reject Accept If the pretax cost savings are $153,000 per year, what is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) NPV $______ Will you accept or reject the project? Accept Reject At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? (Do not round intermediate calculations and round your final answer to 2 decimal places, e.g., 32.16.) Cost savings $___________
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