Your firm is contemplating the purchase of a new $481,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $481,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $46,800 at the end of that time. You will be able to reduce working capital by $65,000 (this is a one-time reduction). The tax rate is 33 percent and your required return on the project is 18 percent and your pretax cost savings are $142,350 per year.

What is the NPV of this project?

What is the NPV if the pretax cost savings are $197,750 per year?

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

Expert Solution

jeff jeffy answered 7 months ago

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