Project Evaluation In the previous problem, suppose your required return on the project is 10 percent and your pretax cost savings are $135,000 per year. Will you accept the project? What if the pretax cost savings are only $95,000 per year?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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show all excel formulas/ work answering the following: 

Solve for : LO2 17

LO2 16.
Project Evaluation Your firm is contemplating the purchase of a new $395,000 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 save
$125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the
beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21
Page 306
percent, what is the IRR for this project?
LO2 17.
Project Evaluation
In the previous problem, suppose your required return on the project is 10 percent and your pretax cost
savings are $135,000 per year. Will you accept the project? What if the pretax cost savings are only $95,000 per year?
Transcribed Image Text:LO2 16. Project Evaluation Your firm is contemplating the purchase of a new $395,000 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 save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 Page 306 percent, what is the IRR for this project? LO2 17. Project Evaluation In the previous problem, suppose your required return on the project is 10 percent and your pretax cost savings are $135,000 per year. Will you accept the project? What if the pretax cost savings are only $95,000 per year?
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