$2.168 million which will be depreciated straight-line to a zero book value over the 10-year life 19.94) Gateway Communications is considering a project with an initial fixed asset cost of 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
$2.168 million which will be depreciated straight-line to a zero book value over the 10-year life 19.94) Gateway Communications is considering a project with an initial fixed asset cost of 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
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 17P
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Transcribed Image Text:$2.168 million which will be depreciated straight-line to a zero book value over the 10-year life
19.94) Gateway Communications is considering a project with an initial fixed asset cost of
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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Step 1: Concept.
VIEWStep 2: Computation of Tax savings on depreciation.
VIEWStep 3: Computation of present value of cash inflows.
VIEWStep 4: Computation of Present value of net proceeds on sale of asset.
VIEWStep 5: Computation of Present value of Recovery of working capital.
VIEWStep 6: Computation of Net present value.
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