Chapter $9$ Connect Practice Problems

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Problem $9-17$ Project Evaluation $[$LO$2]$

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Your firm is contemplating the purchase of a new $$550,000$ computer$-$based order entry system. The system will be depreciated straight$-$line to zero over its five$-$year life. It will be worth $$74,000$ at the end of that time. You will be able to reduce working capital by $$99,000$ at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is $23$ percent and the required return on the project is $11$ percent.

a$.$ If the pretax cost savings are $$150,000$ per year, what is the NPV of this project?

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

b$.$ If the pretax cost savings are $$115,000$ per year, what is the NPV of this project?

Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

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

Note: Do not round intermediate calculations and round your answer to $2$ decimal places, e$.$g$.,32\mathrm{.}16.$

$\backslash$table$[[$a$.$ NPV$],[$b$.$ NPV$],[$c$.$ Cost savings$]]$