Your firm is contemplating the purchase of a new $425,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $425,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $41,400 at the end of that time. You will be able to reduce working capital by $57,500 (this is a one-time reduction). The tax rate is 33 percent and your required return on the project is 17 percent and your pretax cost savings are $122,500 per year.

Requirement 1: What is the NPV of this project?

Requirement 2: What is the NPV if the pretax cost savings are $170,100 per year?

Requirement 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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