Your firm is contemplating the purchase of a new $1,702,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $1,702,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $165,600 at the end of that time. You will be able to reduce working capital by $230,000 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 19 percent and your pretax cost savings are $677,250 per year.

a. What is the NPV of this project?

b. What is the NPV if the pretax cost savings are $487,600 per year?

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

Expert Solution

Hence, Indifference level of pretax cost savings was $592,859.45

jeff jeffy answered 2 years ago

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