Question: Bridges Connect Inc. is considering a project that will not directly produce any sales but will reduce operating costs by $500,000 per year. The project

  1. Bridges Connect Inc. is considering a project that will not directly produce any sales but will reduce operating costs by $500,000 per year. The project has an initial fixed asset cost of $2 million, which will be depreciated straight-line to a zero book value over the 8-year life of the project. At the end of the project, the equipment will be sold for an estimated $210,000 before taxes. The corporate tax rate is 21 percent. The project will require $55,000 in inventory which will be recouped when the project ends. Assuming the firm requires a 15 percent rate of return, should this project be implemented? Why or why not?

  1. Yes; the NPV is $25,288.98.
  2. Yes; the NPV is $39,145.30.
  3. Yes; the NPV is $27,360.15.
  4. No; the NPV is -$12,640.20.
  5. No; the NPV is -$26,520.85.

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