At what level of pretax cost savings would be indifferent

Reference no: EM13292847

Your firm is contemplating the purchase of a new $980,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $95,400 at the end of that time. You will be able to reduce working capital by $132,500 (this is a one-time reduction). The tax rate is 35 percent and your required return on the project is 21 percent and your pretax cost savings are $443,200 per year.

Requirement 1:
What is the NPV of this project?

Requirement 2:
What is the NPV if the pretax cost savings are $319,100 per year?

Requirement 3:
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Reference no: EM13292847

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