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Your firm is contemplating the purchase of a new $407,000computer-based order entry system. The system will be depreciatedstraight-line to zero over its 5-year life. It will be worth$39,600 at the end of that time. You will be able to reduce workingcapital by $55,000 (this is a one-time reduction). The tax rate is32 percent and your required return on the project is 16 percentand your pretax cost savings are $157,250 per year. Requirement 1:What is the NPV of this project? Requirement 2: What is the NPV ifthe pretax cost savings are $113,200 per year? Requirement 3: Atwhat level of pretax cost savings would you be indifferent betweenaccepting the project and not accepting it?
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