At what level of pretax cost savings would be indifferent

Reference no: EM13298906

Your firm is contemplating the purchase of a new $720,000 computer based order entry system. The system will be deprciated straight-line zero over its five year life. It will be worth $75,000 at the end of that time. You will save $260,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $110,000 (this is a one-time reduction).

A. Suppose your required return on the project is 20 percent and your pretax cost savings are $300,000 per year. Will you accept this project?

B. What if the pretax cost savings are $240,000 per year?

C. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Reference no: EM13298906

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