our firm is contemplating the purchase of a new $395,000 computer-based order entry system. The system...

our firm is contemplating the purchase of a new $395,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 21 percent.

a.	Suppose your required return on the project is 10 percent and your pretax cost savings are $135,000 per year. What is the NPV of the project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b.	Suppose your required return on the project is 10 percent and your pretax cost savings are $95,000 per year. What is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Expert Solution

jeff jeffy answered 1 year ago

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