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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?.

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Gateway communications are 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. the net present value at the required rate of return of 13. 6 percent is  $426,800.

What is depreciated straight-line?

Generally, To calculate the net present value (NPV) of the project, you will need to determine the cash flows for each year of the project and then discount those cash flows back to the present using the required rate of return.

First, let's determine the annual cash flows for the project. The project will generate annual operating cost savings of $714,000, but it will also incur annual depreciation expense equal to the initial cost of the equipment divided by the number of years of the project's life. In this case, the annual depreciation expense is $287,200 (2.872 million / 10 years).

The net annual cash flow for the project is therefore $714,000 - $287,200 = $426,800.

Next, we need to discount these annual cash flows back to the present using

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