Question
Gateway Communications is considering a project with an initial fixed asset cost of $2.872 million which will be depreciated straight-line to a zero book value
Gateway Communications is considering a project with an initial fixed asset cost of $2.872 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 $714,000 a year. The tax rate is 35 percent. The project will require $52,000 of inventory which will be recouped when the project ends. What is the net present value at the required rate of return of 13.6 percent?
(multiple choice) -( ** see my work below)
1.$68,019.24
2. $101,414.14
3. $152,108.10
4. $70,475.57
5. $136,691.88
*****My work:
Initial Cash Flow= -2,872,000 - -52,000 = -$2,924,000
OCF: $714,000 (1-.35) +(2,872,000/10)(.35) = $564,620
Final Cash Flow: $52,000 +$300,000(1-.35) = $247,000
*** I am having hard time figuring NPV - Can someone help me with the equation ?
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