Considering project with an initial fixed asset cost

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Reference no: EM132054545

City Security is considering a project with an initial fixed asset cost of $5,600,000 which will be depreciated on the MACRS 5-year class over the 5-year of the project. At the end of the project, the book value will be zero and the equipment will be sold for an estimated $2,800,000. The project will not directly produce any sales but will save the firm $1,000,000 per year in pretax operating cost. The system requires an initial investment in net-working capital of $290,000. The tax rate is 35%. Should this project be impletemented if the firm requires a 7% rate of return? Show your calculation.

Reference no: EM132054545

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