X Co. is considering a project with an initial fixed cost of $2.46 million which

Question

X Co. is considering a project with an initial fixed cost of $2.46 million which will be depreciated straight line to a zero book value over the 10 year life of the project. At the end of the project the equipment will be sold for an estimated $300,000. 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 require $45,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14% rate of return? why or why not ? a. No, the NPV is -$172,937.49 b. No, the NPV is -$87,820.48 c. Yes, the NpV is $251,860.34 d. Yes, the NPV is $466,940.57

Explanation / Answer

No: The NPV is -$87,820.48

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