Oregon Forest Products will acquire new equipment that fallsunder the five-year MACRS category. The cost is $400,000. If theequipment is purchased, the following earnings before depreciationand taxes will be generated for the next six years. Use Table12-12. Use Appendix B for an approximate answer but calculate yourfinal answer using the formula and financial calculatormethods.
Earnings before Depreciation:
Year 1: $119,000 Year 2: 175,000 Year 3:120,000 Year 4: 65,000 Year 5:68,000 Year 6: 38,000
The firm is in a 25 percent tax bracket and has a 12 percentcost of capital.
A. Calculate the net present value. (Anegative amount should be indicated by a minus sign. Do not roundintermediate calculations and round your answer to the nearestwhole dollar amount.)
Oregon Forest Products will acquire new equipment that fallsunder the five-year MACRS category. The cost is $400,000. If theequipment is purchased, the following earnings before depreciationand taxes will be generated for the next six years. Use Table12-12. Use Appendix B for an approximate answer but calculate yourfinal answer using the formula and financial calculatormethods.
Earnings before Depreciation:
Year 1: $119,000 Year 2: 175,000 Year 3:120,000 Year 4: 65,000 Year 5:68,000 Year 6: 38,000
The firm is in a 25 percent tax bracket and has a 12 percentcost of capital.
A. Calculate the net present value. (Anegative amount should be indicated by a minus sign. Do not roundintermediate calculations and round your answer to the nearestwhole dollar amount.)
Related questions
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.
| 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? | ||||
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DataPoint Engineering is considering the purchase of a new piece of equipment for $410,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $230,000 in nondepreciable working capital. Seventy-seven thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12â11, Table 12â12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Amount | ||||
| 1 | $ | 236,000 | |||
| 2 | 194,000 | ||||
| 3 | 164,000 | ||||
| 4 | 149,000 | ||||
| 5 | 112,000 | ||||
| 6 | 102,00 | ||||
The tax rate is 30 percent. The cost of capital must be computed based on the following:
| Cost (aftertax) | Weights | ||||||||
| Debt | Kd | 10.20 | % | 30 | % | ||||
| Preferred stock | Kp | 12.50 | 20 | ||||||
| Common equity (retained earnings) | Ke | 19.00 | 50 | ||||||
a. Determine the annual depreciation schedule.
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The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $100,000. Of this amount, $80,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $20,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The contract will require an additional investment of $42,000 in working capital at the beginning of the first year and, of this amount, $22,000 will be returned to the Spartan Technology Company after six years. The investment will produce $40,000 in income before depreciation and taxes for each of the six years. The corporation is in a 30 percent tax bracket and has a 15 percent cost of capital
. a. Calculate the net present value
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