Problem 1 your firm is contemplating the purchase of a new

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Problem 1 Your firm is contemplating the purchase of a new $720,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $75,000at 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). If the tax rate is 35 percent, what is the IRR for this project? Problem 2 In the previous problem, suppose your required return on the project is 20 percent and your pretax cost savings are $300,000 per year. Will you accept the project? What if the pretax cost savings are $240,000 per year? At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Reference no: EM13610542

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