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Your firm is contemplating the purchase of a new $1554000 computer based order entry system The system will be depreciated straight line to zero over its 5 year life It will be worth

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 34 percent and your required return on the project is 23 percent and your pretax cost savings are $528,700 per year.

Requirement 1:

What is the NPV of this project?

 
Requirement 2:

What is the NPV if the pretax cost savings are $734,250 per year?

Requirement 3:

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

Apr 06 2020 View more View Less

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