Your firm is contemplating the purchase of a new $573,500 computer-based order entry system. The system will be depreciated straight-line to zero over its 5-year life. It will be worth $55,800 at the end of that time. You will be able to reduce working capital by $77,500 (this is a one-time reduction). The tax rate is 31 percent and your required return on the project is 24 percent and your pretax cost savings are $271,650 per year.
Questions:
1. What is the NPV of this project?
2. What is the NPV if the pretax cost savings are $195,600 per year?
3. At what level of pretax cost savings would you be indifferent between accepting the project and not accepting it?