Your firm is contemplating the purchase of a new $1,683,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $163,800 at the end of that time. You will be able to reduce working capital by $227,500 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 17 percent and your pretax cost savings are $636,550 per year. a. What is the NPV of this project? NPV b. What is the NPV if the pretax cost savings are $458,300 per year? NPV

Your firm is contemplating the purchase of a new $1,683,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $163,800 at the end of that time. You will be able to reduce working capital by $227,500 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 17 percent and your pretax cost savings are $636,550 per year. a. What is the NPV of this project? NPV b. What is the NPV if the pretax cost savings are $458,300 per year? NPV

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

The Rodriguez Company is considering an average-risk investment in a mineral water spring project that has an initial after-tax cost of 170,000. The project will produce 1,000 cases of mineral water per year indefinitely, starting at Year 1. The Year-1 sales price will be 138 per case, and the Year-1 cost per case will be 105. The firm is taxed at a rate of 25%. Both prices and costs are expected to rise after Year 1 at a rate of 6% per year due to inflation. The firm uses only equity, and it has a cost of capital of 15%. Assume that cash flows consist only of after-tax profits because the spring has an indefinite life and will not be depreciated. a. What is the present value of future cash flows? (Hint: The project is a growing perpetuity, so you must use the constant growth formula to find its NPV.) What is the NPV? b. Suppose that the company had forgotten to include future inflation. What would they have incorrectly calculated as the projects NPV?
Your firm is contemplating the purchase of a new $1,202,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $117,000 at the end of that time. You will be able to reduce working capital by $162,500 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 19 percent and your pretax cost savings are $478,500 per year. a. What is the NPV of this project? NPV b. What is the NPV if the pretax cost savings are $344,500 per year? NPV
Your firm is contemplating the purchase of a new $1,424,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $138,600 at the end of that time. You will be able to reduce working capital by $192,500 (this is a one-time reduction). The tax rate is 21 percent and your required return on the project is 22 percent and your pretax cost savings are $603,050 per year. a. What is the NPV of this project? b. What is the NPV if the pretax cost savings are $434,200 per year? c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Your firm is contemplating the purchase of a new $540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $68,000 at the end of that time. You will be able to reduce working capital by $93,000 (this is a one-time reduction). The tax rate is 21 percent and the required return on the project is 9 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Will you accept or reject the project? Accept Reject If the pretax cost savings are $115,000 per year, what is the NPV of this project? (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., 32.16.) NPV Will you accept or reject the project? Reject Accept At what level of pretax cost savings would you be indifferent between accepting the…
Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will be able to reduce working capital by $84,000 (this is a one-time reduction). The tax rate is 23 percent and the required return on the project is 11 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV Will you accept or reject the project? O Reject • Accept If the pretax cost savings are $115,000 per year, what is the NPV of this project? (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., 32.16.) NPV Will you accept or reject the project? ○ Accept • Reject At what level of pretax cost savings would you be indifferent between…
Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will be able to reduce working capital by $60,000 (this is a one-time reduction). The tax rate is 24 percent and the required return on the project is 11 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (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., 32.16.) NPV _ Will you accept or reject the project? Accept Reject If the pretax cost savings are $100,000 per year, what is the NPV of this project? (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., 32.16.) NPV
our firm is contemplating the purchase of a new $1,998,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $194,400 at the end of that time. You will be able to reduce working capital by $270,000 (this is a one-time reduction). The tax rate is 22 percent and your required return on the project is 22 percent and your pretax cost savings are $850,650 per year. Show equations using excel a. What is the NPV of this project? b. What is the NPV if the pretax cost savings are $612,450 per year? c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $44,000 at the end of that time. You will be able to reduce working capital by $69,000 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., 32.16. 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., 32.16. c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting…
Your firm is contemplating the purchase of a new $1,344,000 computer based order entry system. The system will be depreciated straight line to zero over its 5 year life. It will be worth $120,000 at the end of that time. You will save $528,000 before taxes per year in order processing costs and you will be able to reduce working capital by $177,994 this time reduction. Required: if the tax rate is 30 percent, what is the IRR for this project? Do not round your intermediate calculations.
Your firm is contemplating the purchase of a new $1,905,500 computer based order entry system. The system will be depreciated straight line to zero over its 5 year life. It will be worth $185,400 at the end of that time. You will be able to reduce working capital by $257,500 this is a one time reduction. The tax rate is 31 percent and your required return on the project is 22 percent and your pretax cost savings are $ 618,400 per year. Require 1: what is the NPV of this project? required 2: what is the NPV if the pretax cost savings are $858,850 per year? required 3: at what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
Your firm is contemplating the purchase of a new $620,000 computer - based order entry system. The system will be depreciated straight - line to zero over its 5-year life. It will be worth $101,000 at the end of that time. You will save $194,000 before taxes per year in order processing costs, and you will be able to reduce working capital by S 116,000 (this is a one time reduction). If the tax rate is 24 percent, what is the IRR for this project?
Your firm is contemplating the purchase of a new $640,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $117,000 at the end of that time. You will save $202,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $132,000 (this is a one-time reduction). If the tax rate is 23 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)