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Your firm is contemplating the purchase of a new $1,942,500computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$189,000 at the end of that time. You will be able to reduceworking capital by $262,500 (this is a one-time reduction). The taxrate is 32 percent and your required return on the project is 20percent and your pretax cost savings are $602,800 per year.1. What is the NPV of this project?2. What is the NPV if the pretax cost savings are $837,200 peryear?3. At what level of pretax cost savings would you be indifferentbetween accepting the project and not accepting it?
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