Your firm is contemplating the purchase of a new $1,942,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $1,942,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $189,000 at the end of that time. You will be able to reduce working capital by $262,500 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 20 percent and your pretax cost savings are $602,800 per year.

1. What is the NPV of this project?

2. What is the NPV if the pretax cost savings are $837,200 per year?

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

Expert Solution

jeff jeffy answered 9 months ago

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