Project evaluation-what level of pretax cost savings

Assignment Help Financial Management

Reference no: EM131923929

Project Evaluation. 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 over 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 percent, In the previous problem, suppose your required return on the project is 11 percent 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: EM131923929

Questions Cloud

The change in property tax policy : What is the value of the Uys’ house after the change in property tax policy under 100% capitalization? Explain your calculation carefully.

Duration of liabilities would lead to duration gap of zero : what duration of assets would lead to a duration gap of zero? what duration of liabilities would lead to a duration gap of zero?

What is the current ytm of bonds : You are analyzing the cost of debt for a firm. What is the current YTM of the bonds?

Convertible bond pays interest annually at coupon rate : A convertible bond pays interest annually at a coupon rate of 5% on a par value of $1,000.

Project evaluation-what level of pretax cost savings : Project Evaluation. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Momentum cyclicals cost of common equity capital : If the risk-free rate of return is 4.60 percent and market risk premium is 5.71 percent, what is Momentum Cyclicals’ cost of common equity capital?

What is the degree of total leverage of haunted forest : what is the degree of total (combined) leverage of Haunted Forest, Inc.?

What is cost of common stock for whitewall : Whitewall Tire Co. just paid an annual dividend of $1.20 on its common shares. what is the cost of common stock for Whitewall?

Emerging medical technology products business : Stacey Buyer is the CEO, chairman, founder and majority owner of Hanley Medical Ltd, an emerging medical technology products business.

User Account

All Pages