Your firm is contemplating the purchase of a new $550,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $54,000 at the end of that time. You will be able to reduce working capital by $69,000 (this is a one-time reduction). The tax rate is 30 percent and the required return on the project is 16 percent. If the pretax cost savings are $216,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 107270.16 $ NPV Will you accept or reject the project? Ассеpt Reject If the pretax cost savings are $166,000 per year, what is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) -7330.12 $ NPV Will you accept or reject the project? Reject Ассept At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Cost savings
Your firm is contemplating the purchase of a new $550,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $54,000 at the end of that time. You will be able to reduce working capital by $69,000 (this is a one-time reduction). The tax rate is 30 percent and the required return on the project is 16 percent. If the pretax cost savings are $216,000 per year, what is the NPV of this project? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) 107270.16 $ NPV Will you accept or reject the project? Ассеpt Reject If the pretax cost savings are $166,000 per year, what is the NPV of this project? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) -7330.12 $ NPV Will you accept or reject the project? Reject Ассept At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) Cost savings
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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Need help with cost savings
Transcribed Image Text:Your firm is contemplating the purchase of a new $550,000 computer-based order entry system. The
system will be depreciated straight-line to zero over its five-year life. It will be worth $54,000 at the end of
that time. You will be able to reduce working capital by $69,000 (this is a one-time reduction). The tax rate is
30 percent and the required return on the project is 16 percent.
If the pretax cost savings are $216,000 per year, what is the NPV of this project? (Do not round
intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
107270.16
$
NPV
Will you accept or reject the project?
Ассеpt
Reject
If the pretax cost savings are $166,000 per year, what is the NPV of this project? (Negative amount
should be indicated by a minus sign. Do not round intermediate calculations and round your final
answer to 2 decimal places. (e.g., 32.16))
-7330.12
$
NPV
Will you accept or reject the project?
Reject
Ассept
At what level of pretax cost savings would you be indifferent between accepting the project and not
accepting it? (Do not round intermediate calculations and round your final answer to 2 decimal
places. (e.g., 32.16))
Cost savings
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