In: Finance
Your firm is contemplating the purchase of a new $2,072,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $201,600 at the end of that time. You will be able to reduce working capital by $280,000 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 22 percent and your pretax cost savings are $933,900 per year. Requirement 1: What is the NPV of this project? Requirement 2: What is the NPV if the pretax cost savings are $672,400 per year? Requirement 3: At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?