Problem:
Your firm is contemplating the purchase of a new $615,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $67,000 at the end of that time. You will be able to reduce working capital by $82,000 (this is a one-time reduction). The tax rate is 30 percent and the required return on the project is 16 percent.
Required:
If the pretax cost savings are $207,000 per year, what is the NPV of this project?