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Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $592,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $57,600 at the end of that time. You will be able to reduce working capital by $80,000 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 17 percent and your pretax cost savings are $223,850 per year.

  

a. What is the NPV of this project?

  

b. What is the NPV if the pretax cost savings are $161,150 per year?

  

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

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Expert Solution

jeff jeffy answered 1 year ago
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