Your firm is contemplating the purchase of a new $425,500 computer-based order entry system. The system...

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Your firm is contemplating the purchase of a new $425,500computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$41,400 at the end of that time. You will be able to reduce workingcapital by $57,500 (this is a one-time reduction). The tax rate is33 percent and your required return on the project is 17 percentand your pretax cost savings are $122,500 per year.
Requirement 1: What is the NPV of this project?
Requirement 2: What is the NPV if the pretax cost savings are$170,100 per year?
Requirement 3: At what level of pretax cost savings would you beindifferent between accepting the project and not accepting it?

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Your firm is contemplating the purchase of a new $425,500computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$41,400 at the end of that time. You will be able to reduce workingcapital by $57,500 (this is a one-time reduction). The tax rate is33 percent and your required return on the project is 17 percentand your pretax cost savings are $122,500 per year.Requirement 1: What is the NPV of this project?Requirement 2: What is the NPV if the pretax cost savings are$170,100 per year?Requirement 3: At what level of pretax cost savings would you beindifferent between accepting the project and not accepting it?