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 48,000 at the end of that time. You will be able to reduce working capital by 43,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 40 percent.
Suppose your required return on the project is 10 percent and your pretax cost savings are 198,000 per year. What is the NPV of the project?
Suppose your required return on the project is 10 percent and your pretax cost savings are 138,000 per year. What is the NPV of the project?