Your firm is contemplating the purchase of a new $370,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $36,000 at the end of that time. You will be able to reduce working capital by $50,000 (this is a one-time reduction). The tax rate is 24 percent and your required return on the project is 22 percent and your pretax cost savings are $159,400 per year. a. What is the NPV of this project? NPV $ 69,394.23 $ 67,312.41 $ 65,924.52 $ 72,863.95 b. What is the NPV if the pretax cost savings are $114,750 per year? NPV $-27,780.52 $-26,947.10 $-26,391.49 $-26,391.49 c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? Cost savings $127,514.63 $114,671.12 $ 13,172.39 $133,890.37

Your firm is contemplating the purchase of a new $370,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $36,000 at the end of that time. You will be able to reduce working capital by $50,000 (this is a one-time reduction). The tax rate is 24 percent and your required return on the project is 22 percent and your pretax cost savings are $159,400 per year. a. What is the NPV of this project? NPV $ 69,394.23 $ 67,312.41 $ 65,924.52 $ 72,863.95 b. What is the NPV if the pretax cost savings are $114,750 per year? NPV $-27,780.52 $-26,947.10 $-26,391.49 $-26,391.49 c. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? Cost savings $127,514.63 $114,671.12 $ 13,172.39 $133,890.37

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter11: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...

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