Your firm is contemplating the purchase of a new $1,424,500 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $1,424,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $138,600 at the end of that time. You will be able to reduce working capital by $192,500 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 17 percent and your pretax cost savings are $562,650 per year.

Requirement 1:

What is the NPV of this project?

(Click to select)$241,004.99$236,035.81$260,881.69$255,912.52$248,458.75

Requirement 2:

What is the NPV if the pretax cost savings are $405,100 per year?

(Click to select)$-99,340.57$-94,373.54$-102,320.79$-96,360.35$-104,307.60

Requirement 3:

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

(Click to select)$450,100.39$17,132.49$398,888.27$427,595.37$472,605.41

rev: 09_18_2012, 04_09_2016_QC_CS-48481

Expert Solution

jeff jeffy answered 7 months ago

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