At what level of pretax cost saving would you be indifferent

Reference no: EM131975193

Question: Your firm is contemplating the purchase of a new $425,000 computer-based order entry system. The system will be depreciated straight-line to zero ove its five year life. It will be worth $30,000 at the end of that time. You will save $130,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (This is a one-time reduction). If the tax rate is 35%, what is the IRR for this project?

In the previous problem, suppose your required return on the project is 11% and your pretax cost savings are $150,000 per year. Will you accept the project? What if the pretax cost savings are $100,000 per year? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Reference no: EM131975193

Questions Cloud

What is jennifer outside basis : The partnership assumes Jennifer's liability of $20,000 as part of the transaction. Assume no other partnership liabilities. What is Jennifer's outside basis

What will the stock price be in three years : what is its current price? What will the stock price be in three years?

Identify and critically analyse principles and trends : Identify and critically analyse principles and trends in Performance Measurement and Control - Determine the different budgeting techniques and critically

What amount of gain does victoria recognize on the exchange : The building was subject to a $10,000 mortgage assumed by Tax Corp. What amount of gain does Victoria recognize on the exchange

At what level of pretax cost saving would you be indifferent : What if the pretax cost savings are $100,000 per year? At what level of pretax cost savings would you be indifferent between accepting the project.

Summary on completing public budgeting project : Write a reflective summary on completing a public budgeting project. The process ends with a “Budget Presentation” for the Mayor& City Council.

How much of the distribution is treated as a dividend : Inca distributed $300,000 to its sole shareholder on January 1, 20X3. How much of the distribution is treated as a dividend in 20X3

How much the firm can pay for the project : A firm is considering a project that will generate perpetual after-tax cash flows of $21,000 per year beginning next year.

How many shares are considered owned by ruth : Madison Trust 50 shares, Ruth's brother 50 shares. Ruth is a 50 percent beneficiary of the trust. How many shares are considered owned by Ruth

User Account

All Pages