Your firm is contemplating the purchase of a new $2,090,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $2,090,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $203,400 at the end of that time. You will be able to reduce working capital by $282,500 (this is a one-time reduction). The tax rate is 35 percent and your required return on the project is 21 percent and your pretax cost savings are $680,350 per year.

Requirement 1:

What is the NPV of this project?

(Click to select) $-139,504.09 $-136,627.71 $-151,009.58 $-148,133.20 $-143,818.65

Requirement 2:

What is the NPV if the pretax cost savings are $944,950 per year?

(Click to select) $348,638.76 $359,421.40 $377,392.47 $370,204.04 $341,450.33

Requirement 3:

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

(Click to select) $791,862.07 $718,170.37 $755,968.81 $793,767.25 $637,714.73

Expert Solution

jeff jeffy answered 9 months ago

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