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 $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?
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