c. At what level of pretax cost savings would you be indifferent between accepting theproject and not accepting it?Cost savings Your firm is contemplating the purchase of a new $1,202,500 computer-based orderentry system. The system will be depreciated straight-line to zero over its 5-year life. Itwill be worth $117,000 at the end of that time. You will be able to reduce working capitalby $162,500 (this is a one-time reduction). The tax rate is 23 percent and your requiredreturn on the project is 19 percent and your pretax cost savings are $478,500 per year.a. What is the NPV of this project?NPVb. What is the NPV if the pretax cost savings are $344,500 per year?NPV

NPV: Net present value is the present worth of the cash flows of the project. If the present worth is positive, then the project should be accepted. If the present worth is negative, then the project should be rejected. Information Provided: Costs = $1,202,500 Term = 5 years Tax rate = 23% Required return = 19% Pre tax cost savings = $478,500Computation:Answer A Hence, the NPV of the project is $225,360.00 Computation:Answer B: The NPV of the project is ($90,126.77)Computation:Answer C: Hence the Cost savings = $382,780.49

Answered: Your firm is contemplating the purchase…

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

Section: Chapter Questions

Problem 1PS

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