P$10-17$ Project Evaluation $[$LO$1]$

Your firm is contemplating the purchase of a new $$1,887,000$ computer$-$based order

entry system. The system will be depreciated straight$-$line to zero over its $5-$year life. It

will be worth $$183,600$ at the end of that time. You will be able to reduce working capital

by $$255,000($this is a one$-$time reduction$).$ The tax rate is $22$ percent and your required

return on the project is $19$ percent and your pretax cost savings are $$537,750$ per year.

a$.$ What is the NPV of this project?

NPV

b$.$ What is the NPV if the pretax cost savings are $$746,850$ per year?

NPV

c$.$ At what level of pretax cost savings would you be indifferent between accepting the

project and not accepting it$?$

Cost savings