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 10 months ago

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