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 a $45,000 investment in inventory in year 0, which will be recouped when the project ends in year 10. Calculate the projects NPV if the required rate of return is 14%. Think incrementally: As far as the OCF is concerned, clearly a $725,000 reduction in operating costs means a $725,000 increase in pre-tax profits. OCF (years 1 through 10) = (Sales COGS SG&A) (1-TC) + Tc Depreciation =