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

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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