Gateway Communications Is Considering a Project with an Initial Fixed

question 2

Multiple Choice

Gateway Communications is considering a project with an initial fixed asset cost of $2.168 million which will be depreciated straight-line to a zero book value over the 10-year life of the project. Ignore bonus depreciation. At the end of the project the equipment will be sold for an estimated $495,000. The project will not directly produce any sales but will reduce operating costs by $634,000 a year. The tax rate is 21 percent. The project will require $128,000 of net working capital which will be recouped when the project ends. What is the net present value at the required rate of return of 14.3 percent?

• A) $668,019.24
• B) $701,414.14
• C) $652,108.10
• D) $570,475.57
• E) $657,345.35

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