Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will be able to reduce working capital by $60,000 (this is a one-time reduction). The tax rate is 24 percent and the required return on the project is 11 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. NPV $ 49,451.49 x Will you accept or reject the project? Accept Reject If the pretax cost savings are $100,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. NPV $ -96,938.54 × Will you accept or reject the project? Accept Reject At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. Cost savings $ 132,394.60 ×

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 4P
Question

please answer this too accuretly:

Your firm is contemplating the purchase of a new $535,000 computer-based order entry
system. The system will be depreciated straight-line to zero over its five-year life. It will
be worth $30,000 at the end of that time. You will be able to reduce working capital by
$60,000 (this is a one-time reduction). The tax rate is 24 percent and the required return
on the project is 11 percent.
If the pretax cost savings are $150,000 per year, what is the NPV of this project? (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
× Answer is complete but not entirely correct.
NPV $
49,451.49 x
Will you accept or reject the project?
Accept
Reject
If the pretax cost savings are $100,000 per year, what is the NPV of this project? (A
negative answer should be indicated by a minus sign. Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Transcribed Image Text:Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $30,000 at the end of that time. You will be able to reduce working capital by $60,000 (this is a one-time reduction). The tax rate is 24 percent and the required return on the project is 11 percent. If the pretax cost savings are $150,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. NPV $ 49,451.49 x Will you accept or reject the project? Accept Reject If the pretax cost savings are $100,000 per year, what is the NPV of this project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
calculations and round your answer to 2 decimal places, e.g., 32.16.)
× Answer is complete but not entirely correct.
NPV $
-96,938.54 ×
Will you accept or reject the project?
Accept
Reject
At what level of pretax cost savings would you be indifferent between accepting the
project and not accepting it? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
× Answer is complete but not entirely correct.
Cost savings
$
132,394.60 ×
Transcribed Image Text:calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. NPV $ -96,938.54 × Will you accept or reject the project? Accept Reject At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) × Answer is complete but not entirely correct. Cost savings $ 132,394.60 ×
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