Gateway Communications is considering a project with an initial fixed asset cost of $2.46 million

Gateway Communications is considering a project with an initial fixed asset cost of $2.46 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 $725,000 a year. The tax rate is 35 percent. The project will require $45,000 of inventory which will be recouped when the project ends. Should this project be implemented if the firm requires a 14 percent rate of return? Why or why not?    A.  No; The NPV is -$172,937.49. B.  No; The NPV is -$87,820.48. C.  Yes; The NPV is $251,860.34. D.  Yes; The NPV is $387,516.67. E.  Yes; The NPV is $466,940.57. Initial cash flow = -$2,460,000 - $45,000 = -$2,505,000 OCF = $725,000(1 - 0.35) + ($2,460,000/10)(0.35) = $557,350 Final cash flow = $45,000 + $300,000 (1 - 0.35) = $240,000

75.

You are working on a bid to build two city parks a year for the next three years. This project requires the purchase of $185,000 of equipment that will be depreciated using straight-line depreciation to a zero book value over the 3-year project life. The equipment can be sold at the end of the project for $34,000. You will also need $20,000 in net working capital for the duration of the project. The fixed costs will be $18,000 a year and the variable costs will be $168,000 per park. Your required rate of return is 15 percent and your tax rate is 34 percent. What is the minimal amount you should bid per park? (Round your answer to the nearest $100)    A.  $72,500 B.  $128,600 C.  $154,300 D.  $189,100 E.  $219,900   NI = $77,563.53 - ($185,000/3) = $15,896.87 EBT = $15,896.87/(1 - 0.34) = $24,086.16 Sales = $24,086.16 + ($185,000/3) + $18,000 + ($168,000 × 2) = $439,752.83 Bid per park = $439,752.83/2 = $219,876.42 When rounded to the nearest $100, the bid price is $219,900.