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Gateway Communications is considering a project with an initial fixed assets cost of $1.63 million that...

Gateway Communications is considering a project with an initial fixed assets cost of $1.63 million that 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 $233,000. The project will not change sales but will reduce operating costs by $384,000 per year. The tax rate is 40 percent and the required return is 10.8 percent. The project will require $48,500 in net working capital, which will be recouped when the project ends. What is the project's NPV?

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Expert Solution

NPV of project is calculated in excel and screen shot provided below:

NPV of project is $144,576.54 and IRR of project is 12.73%.

Since, NPV of project is a positive value, so project should be accepted.

jeff jeffy answered 2 years ago
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