1.
Your firm is contemplating the purchase of a new $636,000 computer-
based order entry system. The system will be depreciated straight-
line to zero over its six-year life. It will be worth $44,000 at the end of
that time. You will be able to reduce working capital by $39,000 at the
beginning of the project. Working capital will revert back to normal at
the end of the project. Assume the tax rate is 30 percent.
Suppose your required return on the project is 10 percent and your
pretax cost savings are $194,000 per year. What is the NPV of the
project?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
NPV $
Suppose your required return on the project is 10 percent and your
pretax cost savings are $134,000 per year. What is the NPV of the
project?
(A negative answer should be indicated by a minus
sign. Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
NPV $
2.
We are evaluating a project that costs $1,398,000, has a six-year life,
and has no salvage value. Assume that depreciation is straight-line to

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- Fall '08
- Olander
- Depreciation, Corporate Finance, OCF, intermediate calculations