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
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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Question
![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe64798b0-5731-41a4-b27d-f0bff6280af7%2Fa903c2d2-5c23-4b3c-a3b0-ccde11bab37e%2Fd58kzwt_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
![c. At what level of pretax cost savings would you be indifferent between accepting the
project and not accepting it?
Cost savings](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe64798b0-5731-41a4-b27d-f0bff6280af7%2Fa903c2d2-5c23-4b3c-a3b0-ccde11bab37e%2Fj59fyp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:c. At what level of pretax cost savings would you be indifferent between accepting the
project and not accepting it?
Cost savings
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