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 9 months ago

Your firm is contemplating the purchase of a new $475,000 computer based order entry system will...

Your firm is contemplating the purchase of a new $475,000 computer based order entry system will be depreciated straight line to zero over its 6 year life . It will be worth $60 ,000 at the end of that time . You will save $165,000 before taxes per year in order processing costs, and 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...

Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $595,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $63,000 at the end of that time. You will save $225,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $78,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do...

Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $630,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $70,000 at the end of that time. You will save $260,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one-time reduction). If the tax rate is 25 percent, what is the IRR for this project? (Do...

Your firm is contemplating the purchase of a new $518,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $518,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $50,400 at the end of that time. You will be able to reduce working capital by $70,000 (this is a one-time reduction). The tax rate is 24 percent and your required return on the project is 23 percent and your pretax cost savings are $164,550 per year. What is the...

Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $585,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $73,000 at the end of that time. You will save $180,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $88,000 (this is a one-time reduction). If the tax rate is 22 percent, what is the IRR for this project? NPV...

Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $605,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $65,000 at the end of that time. You will save $235,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $80,000 (this is a one-time reduction). If the tax rate is 25 percent, what is the IRR for this project?

Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $57,600 at the end of that time. You will be able to reduce working capital by $80,000 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 23 percent and your pretax cost savings are $201,400 per year. Requirement 1: What...

Your firm is contemplating the purchase of a new $684,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $684,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $66,600 at the end of that time. You will be able to reduce working capital by $92,500 (this is a one-time reduction). The tax rate is 21 percent and your required return on the project is 21 percent and your pretax cost savings are $203,750 per year. At what level...

Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $49,000 at the end of that time. You will be able to reduce working capital by $34,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 24 percent. a. What is the aftertax salvage value...

Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of that time. You will save $186,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $85,000 (this is a one time reduction). If the tax rate is 35%, what is the IRR for the project?

Question