Your firm is contemplating the purchase of a new $2,164,500 computer-based order entry system. The system...

60.1K

Verified Solution

Question

Finance

Your firm is contemplating the purchase of a new $2,164,500computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$210,600 at the end of that time. You will be able to reduceworking capital by $292,500 (this is a one-time reduction). The taxrate is 32 percent and your required return on the project is 23percent and your pretax cost savings are $725,450 per year.

Requirement 1:
What is the NPV of this project?
  (Click toselect)   $-149,088.18   $-146,014.20   $-161,384.11   $-158,310.13   $-153,699.15

Requirement 2:
What is the NPV if the pretax cost savings are $1,007,600 peryear?
  (Click toselect)   $372,655.35   $384,180.78   $403,389.82   $364,971.74   $395,706.20

Requirement 3:
At what level of pretax cost savings would you be indifferentbetween accepting the project and not accepting it?
  (Click toselect)   $781,909.49   $765,770.63   $686,658.55   $806,074.34   $846,378.06

Answer & Explanation Solved by verified expert

4.1 Ratings (690 Votes)

See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Your firm is contemplating the purchase of a new $2,164,500computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$210,600 at the end of that time. You will be able to reduceworking capital by $292,500 (this is a one-time reduction). The taxrate is 32 percent and your required return on the project is 23percent and your pretax cost savings are $725,450 per year. Requirement 1:What is the NPV of this project? (Click toselect) $-149,088.18 $-146,014.20 $-161,384.11 $-158,310.13 $-153,699.15 Requirement 2:What is the NPV if the pretax cost savings are $1,007,600 peryear? (Click toselect) $372,655.35 $384,180.78 $403,389.82 $364,971.74 $395,706.20 Requirement 3:At what level of pretax cost savings would you be indifferentbetween accepting the project and not accepting it? (Click toselect) $781,909.49 $765,770.63 $686,658.55 $806,074.34 $846,378.06