Your firm is contemplating the purchase of a new $1,554,000 computer-based order entry system. The system will
Question:
Your firm is contemplating the purchase of a new $1,554,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $151,200 at the end of that time. You will be able to reduce working capital by $210,000 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 21 percent and your pretax cost savings are $687,500 per year.
Requirement 1:
What is the NPV of this project?
(Click to select)$281,787.71$273,580.30$265,372.89$287,259.32$259,901.29
Requirement 2:
What is the NPV if the pretax cost savings are $495,000 per year?
(Click to select)$-109,431.05$-103,959.49$-112,713.98$-114,902.60$-106,148.11
Requirement 3:
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe