Your firm is contemplating the purchase of a new $590,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $62,000 at the end of that time. You will be able to reduce working capital by $77,000 (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 $202,000 per year, what is the NPV of this project?
If the pretax cost savings are $152,000 per year, what is the NPV of this project?