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).)

Homework Answers

Answer #1
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
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Your firm is contemplating the purchase of a new $794,500 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $794,500 computer-based order entry system. The system will be depreciated straight-line to zero over its seven-year life. It will be worth $59,000 at the end of that time. You will be able to reduce working capital by $54,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 30 percent. Suppose your required return on the project...
Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $525,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $59,000 at the end of that time. You will be able to reduce working capital by $84,000 (this is a one-time reduction). The tax rate is 23 percent and the required return on the project is 11 percent. a)If the pretax cost savings are $150,000 per year, what is the...
Your firm is contemplating the purchase of a new $500,000 computer-based order entry system. The system...
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 five-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 (this is a one-time reduction). The tax rate is 23 percent and the required return on the project is 11 percent. If the pretax cost savings are $150,000 per year, what is the...
18. Your firm is contemplating the purchase of a new $540,000 computer-based order entry system. The...
18. Your firm is contemplating the purchase of a new $540,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $68,000 at the end of that time. You will be able to reduce working capital by $93,000 (this is a one-time reduction). The tax rate is 21 percent and the required return on the project is 9 percent. If the pretax cost savings are $150,000 per year, what is...
Your firm is contemplating the purchase of a new $1,184,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $1,184,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $115,200 at the end of that time. You will be able to reduce working capital by $160,000 (this is a one-time reduction). The tax rate is 33 percent and your required return on the project is 21 percent and your pretax cost savings are $379,800 per year. Requirement 1: What...
Your firm is contemplating the purchase of a new $888,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $888,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $86,400 at the end of that time. You will be able to reduce working capital by $120,000 (this is a one-time reduction). The tax rate is 34 percent and your required return on the project is 18 percent and your pretax cost savings are $264,550 per year. Requirement 1: What...
Your firm is contemplating the purchase of a new $2,146,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $2,146,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $208,800 at the end of that time. You will be able to reduce working capital by $290,000 (this is a one-time reduction). The tax rate is 33 percent and your required return on the project is 20 percent and your pretax cost savings are $670,500 per year.    Requirement 1:...
Your firm is contemplating the purchase of a new $555,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $555,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $77,000 at the end of that time. You will save $169,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $102,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? (Do...
Your firm is contemplating the purchase of a new $570,000 computer-based order entry system. The system...
Your firm is contemplating the purchase of a new $570,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $86,000 at the end of that time. You will save $175,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $111,000 (this is a one-time reduction). If the tax rate is 22 percent, what is the IRR for this project? (Do...
Project Evaluation. Your firm is contemplating the purchase of a new $410,000 computer-based order entry system....
Project Evaluation. Your firm is contemplating the purchase of a new $410,000 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 save $125,000 before taxes per year in order processing costs, and 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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT
Active Questions
  • MEASURING ECONOMIC PERFORMANCE: A) The expenditure approach; B) The Income Approach; C) Problems with GDP as...
    asked 3 minutes ago
  • A square gate is used to prevent seawater (density = 1027 kg/m^3) intrusion into a sewer...
    asked 10 minutes ago
  • Show that sequence {sn} converges if it is monotone and has a convergent subsequence.
    asked 21 minutes ago
  • Raner, Harris & Chan is a consulting firm that specializes in information systems for medical and...
    asked 22 minutes ago
  • 4.___________________ are for-profit organizations that contract out or lease a wide range of light manufacturing, warehousing,...
    asked 25 minutes ago
  • A simple random sample of size n is drawn. The sample​ mean, x overbar​, is found...
    asked 58 minutes ago
  • Write C++ code to: Create a function called “ReadFile” that: Accepts a filename as input Opens...
    asked 1 hour ago
  • explain how media effects or influences our behavior in a relationship/ family structure OR how behavioral...
    asked 1 hour ago
  • Consider the following schema: Distributor (d-id: numeric, d-name: varchar, address: varchar) Item (i-id: numeric, i-name: varchar,...
    asked 1 hour ago
  • Dove's advertisement brainstormed marketers. We should be open minded. There are a lot embedded concepts for...
    asked 1 hour ago
  • 5. Describe the function for each of the following components of an image intensifier tube. (3...
    asked 1 hour ago
  • Lab 12 - Inductors PRELAB QUESTIONS 1. What is the difference between an ideal inductor and...
    asked 1 hour ago