Indifferent between accepting project and not accepting

Assignment Help Financial Management

Reference no: EM13881987

Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will be able to reduce working capital by $74,000 (this is a one-time reduction). The tax rate is 34 percent and the required return on the project is 14 percent.

If the pretax cost savings are $211,000 per year, what is the NPV of this project?

If the pretax cost savings are $161,000 per year, what is the NPV of this project?

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

Reference no: EM13881987

Questions Cloud

Example of an anomaly to the efficient market hypothesis : Which of the following is not an example of an anomaly to the efficient market hypothesis?

Cost straight-line to zero over the projects life : Romo Enterprises needs someone to supply it with 121,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. It will cost you $880,000 to install the equipment nec..

Calculate the yield using a geometric average : One-year Treasury securities yield 5%. The market anticipates that 1 year from now, 1 year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2-year Treasury securities? Calculate the yield usin..

Determine which alternative is better at marr of six percent : Calculate the incremental rate of return and determine which alternative is better at a MARR of 6% per year over a 20-year study period.

Indifferent between accepting project and not accepting : Your firm is contemplating the purchase of a new $575,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. At what level of pretax cost ..

Estimate value of property using direct capitalization : You have been asked to estimate the market value of an apartment complex that is producing annual net operating income of $68,000. Four highly similar and competitive apartment properties within two blocks of the subject property have sold in the pas..

What is the first cost for anodizing and the annual cost : What is (a) the first cost for anodizing, (b) the annual cost for powder coating, and (c) the resale (salvage) value of the anodized parts?

Which is low by historical standards : Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of a. 50, which is low by historical standards. b. 25, whic..

Mutch uses the perpetual inventory system : On October 1m Mutch Company sold merchadise in the amount of $5,800 to Carr Company, with credit terms of 2/10,n/30. The cost of the items sold is $4,000. Mutch uses the perpetual inventory system. On October 4, Carr returns some of the merchandise. ..

User Account

All Pages