Question

# Your firm is contemplating the purchase of a new \$480,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new \$480,000 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 \$35,000 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 \$155,000 per year. What is the NPV of the project? (Do not round intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) NPV \$ Requirement 2: Suppose your required return on the project is 10 percent and your pretax cost savings are \$125,000 per year. What is the NPV of the project? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places (e.g., 32.16).)

 Annual cashflows Annual savings 155000 Less: Tax @ 35% -54250 Tax shield on dep 33600 (480000/5* 35%) Annual cash inflows 134350 Annuity PVF at 10% for 5 yrs 3.79079 Present value of Annual inflows 509292.6 Working capital release in beginning 35000 After tax present value of salvage 12107.96 (30000-35%) *0.620921 Total Inflows 556400 Less: Present value of outflows Initial Investment -480000 Present value of WC investment -21732.2 (35000*0.620921) Net Present value 54668

#### Earn Coins

Coins can be redeemed for fabulous gifts.

##### Need Online Homework Help?

Most questions answered within 1 hours.

##### Active Questions
• MEASURING ECONOMIC PERFORMANCE: A) The expenditure approach; B) The Income Approach; C) Problems with GDP as...
• A square gate is used to prevent seawater (density = 1027 kg/m^3) intrusion into a sewer...
• Show that sequence {sn} converges if it is monotone and has a convergent subsequence.
• Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and...
• 4.___________________ are for-profit organizations that contract out or lease a wide range of light manufacturing, warehousing,...
• A simple random sample of size n is drawn. The sample​ mean, x overbar​, is found...