Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm is contemplating the purchase of a new $763,000 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year

Your firm is contemplating the purchase of a new $763,000 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $50,000 at the end of that time. You will be able to reduce working capital by $45,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 30 percent.

Requirement 1:

Suppose your required return on the project is 8 percent and your pretax cost savings are $200,000 per year. What is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).)

NPV $

Requirement 2:

Suppose your required return on the project is 8 percent and your pretax cost savings are $140,000 per year. What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

NPV $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

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

Python For Finance

Authors: Yves Hilpisch

2nd Edition

1492024333, 978-1492024330

More Books

Students also viewed these Finance questions