Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm is contemplating the purchase of a new $ 4 2 5 , 0 0 0 computer - based order entry system. The system

Your firm is contemplating the purchase of a new $425,000 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 $40,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 21 percent.

What is the aftertax salvage value of the equipment?

Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.

Suppose your required return on the project is 9 percent and your pretax cost savings are $141,000 per year.What is the annual OCF?

Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.

What is the NPV of the project?

Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

Suppose your required return on the project is 9 percent and your pretax cost savings are $95,000 per year. What is the annual OCF?

Note: Do not round intermediate calculations and round your answer to the nearest whole number, e.g.,32.

What is the NPV of the project?

Note: A negative answer should be indicated by a minus sign.Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.

Step by Step Solution

3.36 Rating (149 Votes )

There are 3 Steps involved in it

Step: 1

First lets calculate the aftertax salvage value of the equipment textAftertax Salvage Value textSalv... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Finance

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

10th edition

978-0077511388, 78034779, 9780077511340, 77511387, 9780078034770, 77511344, 978-0077861759

More Books

Students also viewed these Accounting questions

Question

Did the researcher display conflicts and value differences?

Answered: 1 week ago