What level of pretax cost savings

Assignment Help Financial Management

Reference no: EM13883211

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: EM13883211

Questions Cloud

Calculate the sustainable growth rate of the company : Johnson Products earned $3.10 per share last year and it paid out $.75 dividend. The company’s ROE is 16%. Calculate the dividend payout ratio; Calculate the sustainable growth rate of the company.

Differentiate between decreasing-charge depreciation methods : Summarize the authoritative guidance for asset impairments under IFRS. Give at least two (2) examples of events that could cause an asset to be tested for impairment, and recommend the best method to determine the fair value of an impaired asset. Dif..

What is the standard deviation of the analysts profit : Assume a market index represents the common factor and all stocks in the economy have a beta of 1. Firm-specific returns all have a standard deviation of 39%. Suppose an analyst studies 20 stocks and finds that one-half have an alpha of 3.3%, and one..

Depreciated straight-line to zero over their lives : Lang Industrial Systems Company (LISC) is trying to decide between two different conveyor belt systems. System A costs $244,000, has a four-year life, and requires $76,000 in pretax annual operating costs. System B costs $342,000, has a six-year life..

What level of pretax cost savings : 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 ..

Role of parties in plurality-proportional election systems : How do political parties shape election outcomes and the formation of governments? Discuss the similarities and differences in the role of political parties in presidential and parliamentary governments, and discuss the role of parties in plurality a..

Deferred tax liability-capital gains offer over dividends : Goodwin Technologies, a relatively new company, has been wildly successful but has yet to pay a dividend. An analyst forecasts that Goodwin is likely to pay its first dividend three years from now. "Investors prefer the deferred tax liability that ca..

Issues zero coupon bonds on market-what is yield to call : Atlantis Fisheries issues zero coupon bonds on the market at a price of $501 per bond. These are callable in 10 years at a call price of $560. Using semi annual compounding, what is the yield to call for these bonds?

Management contract with its newly hired president : The Great Giant Corp. has a management contract with its newly hired president. The contract requires a lump sum payment of $25,100,000 be paid to the president upon the completion of her first 7 years of service. The company wants to set aside an eq..

User Account

All Pages