Your firm is contemplating the purchase of a new $1,831,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $1,831,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $178,200 at the end of that time. You will be able to reduce working capital by $247,500 (this is a one-time reduction). The tax rate is 30 percent and your required return on the project is 19 percent and your pretax cost savings are $546,400 per year.

Requirement 1:

What is the NPV of this project?

(Click to select) $-126,056.17 $-123,457.07 $-136,452.55 $-133,853.45 $-129,954.81

Requirement 2:

What is the NPV if the pretax cost savings are $758,900 per year?

(Click to select) $315,122.33 $341,111.80 $334,614.43 $308,624.96 $324,868.38

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 8 months ago

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