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Problem:

Your firm is contemplating the purchase of a new $691,545 computer-based order entry system. The system will be depreciated straight-line to zero over its six-year life. It will be sold for $82,560 at the end of that time. You will save $153,145 before taxes per year in order processing costs, and you will be able to reduce working capital by $57,697 at the beginning of the project. Working capital will revert back to normal at the end of the project. The tax rate is 36 percent.

Requirement:

Question: What is the NPV of this project if the discount rate is 11 percent?

Note: Explain all steps comprehensively.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166277

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