Gateway Communications is considering a project with an initial fixed asset cost
ID: 2628928 • Letter: G
Question
Gateway Communications is considering a project with an initial fixed asset cost of $1.5 million which will be depreciated straight-line to a zero book value over the 3-year life of the project. At the end of the project the equipment will be sold for an estimated $0.00. The project will not directly produce any sales but will reduce operating costs by $725,000 a year. The tax rate is 35 percent. The project will not require any change in working capital. Should this project be implemented if the firm requires a 14 percent rate of return? Why or why not?
No; The NPV is -$17,937.49.
No; The NPV is -$8,820.48.
Yes; The NPV is $354.70.
Yes; The NPV is $38,516.67.
Yes; The NPV is $46,940.57.
No; The NPV is -$17,937.49.
No; The NPV is -$8,820.48.
Yes; The NPV is $354.70.
Yes; The NPV is $38,516.67.
Yes; The NPV is $46,940.57.
Explanation / Answer
Yes; The NPV is $38,516.67.
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