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Gateway Communications is considering a project with an initial fixed asset cost of $2 million which will be depreciated straight-line to a zero over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $400,000. The project will not directly produce any sales but will reduce operating costs by $820,000 a year. The tax rate is 21 percent. The project will require $50,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 12 percent rate of return? Why or why not?   Please show fomulas

Gateway Communications is considering a project with an initial fixed asset cost of $2 million which will be depreciated straight-line to a zero over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $400,000. The project will not directly produce any sales but will reduce operating costs by $820,000 a year. The tax rate is 21 percent. The project will require $50,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 12 percent rate of return? Why or why not?   Please show fomulas

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Gateway Communications is considering a project with an initial fixed asset cost of $2 million which will be depreciated straight-line to a zero over the 10-year life of the project. At the end of the project the equipment will be sold for an estimated $400,000. The project will not directly produce any sales but will reduce operating costs by $820,000 a year. The tax rate is 21 percent. The project will require $50,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 12 percent rate of return? Why or why not?

 

Please show fomulas

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