Order entry system-level of pretax cost savings

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Your firm is contemplating the purchase of a new $407,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $39,600 at the end of that time. You will be able to reduce working capital by $55,000 (this is a one-time reduction). The tax rate is 32 percent and your required return on the project is 16 percent and your pretax cost savings are $157,250 per year. Requirement 1: What is the NPV of this project? Requirement 2: What is the NPV if the pretax cost savings are $113,200 per year? Requirement 3: At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?

Reference no: EM131978795

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