Gateway Communications is considering a project with an initial fixed asset cost of $2 million which will
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Question:
Gateway Communications is considering a project with an initial fixed asset cost of $2 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 $400,000. The project will not directly produce any sales but will reduce operating costs by $710,000 a year. The tax rate is 35 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?
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