Your firm is contemplating the purchase of a new $545000 computer-based order entry system. The system will be depreciated straight-line to zero over its
five-year life. It will be worth $53000 at the end of that time. You will be able to reduce working capital by $68000 (this is a one-time reduction). The tax
rate is 34 percent and the required return on the project is 14 percent.
If the pretax cost savings are $217000 per year what is the NPV of this project?
If the pretax cost savings are $167000 per year what is the NPV of this project?
At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?