Your firm is contemplating the purchase of a new $2,164,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $2,164,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $210,600 at the end of that time. You will be able to reduce working capital by $292,500 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 23 percent and your pretax cost savings are $725,450 per year.

Requirement 1:

What is the NPV of this project?

(Click to select) $-149,088.18 $-146,014.20 $-161,384.11 $-158,310.13 $-153,699.15

Requirement 2:

What is the NPV if the pretax cost savings are $1,007,600 per year?

(Click to select) $372,655.35 $384,180.78 $403,389.82 $364,971.74 $395,706.20

Requirement 3:

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

(Click to select) $781,909.49 $765,770.63 $686,658.55 $806,074.34 $846,378.06

Expert Solution

jeff jeffy answered 9 months ago

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