Your firm is contemplating the purchase of a new $666,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $666,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $64,800 at the end of that time. You will be able to reduce working capital by $90,000 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 21 percent and your pretax cost savings are $215,150 per year.

Requirement 1:

What is the NPV of this project?

$-44,824.82 $-43,900.59 $-48,521.71 $-47,597.49 $-46,211.15

Requirement 2:

What is the NPV if the pretax cost savings are $298,850 per year?

$115,426.07 $121,197.38 $111,963.29 $109,654.77 $118,888.86

Requirement 3:

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

$251,033.32 $247,407.84 $203,080.37 $227,125.38 $239,079.35

Expert Solution

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jeff jeffy answered 1 year ago

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