Your firm is contemplating the purchase of a new $1,628,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $1,628,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $158,400 at the end of that time. You will be able to reduce working capital by $220,000 (this is a one-time reduction). The tax rate is 25 percent and your required return on the project is 20 percent and your pretax cost savings are $671,700 per year.

a. What is the NPV of this project?

b. What is the NPV if the pretax cost savings are $483,600 per year?

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

Expert Solution

jeff jeffy answered 2 years ago

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