In the previous problem, suppose your required return on the project is 11%, your pre-tax cost savings
Question:
In the previous problem, suppose your required return on the project is 11%, your pre-tax cost savings are now $150,000 per year, and the machine can be depreciated at 30% (Class 10). Will you accept the project? What if the pre-tax savings are only $100,000 per year? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Data in previous problem,
Your firm is contemplating the purchase of a new $425,000 computer-based order entry system. The PVCCATS is $91,209, and the machine will be worth $30,000 at the end of the five-year life of the system. You will save $130,000 before taxes per year in order-processing costs and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 35%, what is the IRR for this project?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9781259654756
10th Canadian Edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan, Gordon Roberts, J. Ari Pandes, Thomas Holloway