Your firm is contemplating the purchase of a new $1,202,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $117,000 at the end of that time. You will be able to reduce working capital by $162,500 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 19 percent and your pretax cost savings are $478,500 per year. a. What is the NPV of this project? NPV b. What is the NPV if the pretax cost savings are $344,500 per year? NPV

Your firm is contemplating the purchase of a new $1,202,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $117,000 at the end of that time. You will be able to reduce working capital by $162,500 (this is a one-time reduction). The tax rate is 23 percent and your required return on the project is 19 percent and your pretax cost savings are $478,500 per year. a. What is the NPV of this project? NPV b. What is the NPV if the pretax cost savings are $344,500 per year? NPV

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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