Working capital will revert back to normal at end of project

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Reference no: EM13927853

Your firm is contemplating the purchase of a new $660,000 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be worth $52,000 at the end of that time. You will be able to reduce working capital by $47,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 35 percent.

Requirement 1:

Suppose your required return on the project is 10 percent and your pretax cost savings are $202,000 per year. What is the NPV of the project?

Requirement 2:

Suppose your required return on the project is 10 percent and your pretax cost savings are $142,000 per year. What is the NPV of the project?

Reference no: EM13927853

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