### What level of pretax cost savings

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Your firm is contemplating the purchase of a new \$600,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth \$64,000 at the end of that time. You will be able to reduce working capital by \$79,000 (this is a one-time reduction). The tax rate is 30 percent and the required return on the project is 16 percent.

If the pretax cost savings are \$204,000 per year, what is the NPV of this project?

If the pretax cost savings are \$154,000 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?

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