Finance NPV Problem
Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. the system will be depreciated straight-line to zero over its 5-year life. It will be worth $44,000 at the end of that time. You will be able to reduce working capital by $69,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 23% and the required return on the project is 11%a) If the pretax cost savings are $150,000 per year, what is the NPV of this project?
b) If the pretax cost savings are $115,000 per year, what is the NPV of this project?
c) At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?
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