Propulsion Labs will acquire new equipment that falls under the five-year MACRS category. The cost is $340,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years:
Use Table 12-9 and Appendix B.
Year 1 $ 121,000 Year 2 140,000 Year 3 100,000 Year 4 60,000 Year 5 55,000 Year 6 32,000
The firm is in a 40 percent tax bracket and has a 12 percent cost of capital.
(a) Calculate the net present value. (Negative amounts should be indicated by a minus sign. Round "PV Factor", "Percentage depreciation" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.)
Net present value $
(b) Under the net present value method, should Propulsion Labs purchase the equipment asset? Yes No
| Propulsion Labs will acquire new equipment that falls under the five-year MACRS category. The cost is $340,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years: |
| Use Table 12-9 and Appendix B. |
| Year 1 | $ | 121,000 |
| Year 2 | 140,000 | |
| Year 3 | 100,000 | |
| Year 4 | 60,000 | |
| Year 5 | 55,000 | |
| Year 6 | 32,000 | |
| The firm is in a 40 percent tax bracket and has a 12 percent cost of capital. |
| (a) | Calculate the net present value. (Negative amounts should be indicated by a minus sign. Round "PV Factor", "Percentage depreciation" to 3 decimal places, intermediate and final answers to the nearest dollar amount. Omit the "$" sign in your response.) |
| Net present value | $ |
| (b) | Under the net present value method, should Propulsion Labs purchase the equipment asset? | ||||
|
Related questions
Propulsion Labs will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years:
| Year 1 | $ | 110,000 | |||||||||||||||
| Year 2 | 120,000 | ||||||||||||||||
| Year 3 | 75,000 | ||||||||||||||||
| Year 4 | 50,000 | ||||||||||||||||
| Year 5 | 56,000 | ||||||||||||||||
| Year 6 | 33,000 | ||||||||||||||||
| |||||||||||||||||
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $340,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Earnings before Depreciation | |||||
| Year 1 | $ | 121,000 | |||
| Year 2 | 140,000 | ||||
| Year 3 | 100,000 | ||||
| Year 4 | 60,000 | ||||
| Year 5 | 55,000 | ||||
| Year 6 | 32,000 | ||||
The firm is in a 40 percent tax bracket and has a 12 percent cost of capital.
a. Calculate the net present value.
| Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12รขยย8 to determine in what depreciation category the asset falls (Hint: It is not 10 years.), and to Table 12-9 to determine the percent depreciation rate for each year. The asset will cost $140,000 and it will produce earnings before depreciation and taxes of $45,000 per year for three years, and then $23,000 a year for seven more years. The firm has a tax rate of 30 percent and a cost of capital of 14 percent. In doing your analysis, if you have years in which there is no depreciation, merely enter a zero for depreciation. Use Appendix B. |
| (a) | Calculate the net present value. (Round "Percentage depreciation" and "PV Factor" to 3 decimal places. Round all dollar values to the nearest whole number. Omit the "$" sign in your response.) |
| Net present value | $ |
| (b) | Based on the net present value, should the Universal Electronics purchase the asset? | ||||
|
