Question

Oregon Forest Products 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. 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 $80,000 Year 2 98,000 Year 3 70,000 Year 4 45,000 Year 5 36,000 Year 6 26,000 The firm is in a 30 percent tax bracket and has a 12 percent cost of capital. a. Calculate the net present value. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value

Answer 1

fix 300000*0.2 C239 A В E F G Н Depreciat Operating Depreciati Net after-tax PVIF@ Net Tax@30% income 237 Year cash flows Investment 12% cash flows Present value EBDT ЕBIT ion on (300,000) $ (300,000) 238 -$300,000.00 $66,071.43 $77,646.68 $47,176.79 $26,607.87 $20,182.24 $11,847.06 0 1.000 1 $ 80,000 $ 60,000 2$98,000 $ 96,000 3 $70,000 $ 57,600 4 $45,000 $ 34,560 5$36,000 $ 34,560 6 $ 26,000 $ 17,280 $ 239 20,000 60,000 0.893 6,000 14,000 74,000 74,000 240 241 $ 2,000 96,000 97,400 0.797 600 1,400 97,400 $ 12,400 3,720 8,680 57,600 66,280 66,280 0.712 242 $ 10,440 41,868 3,132 7,308 34,560 41,868 0.636 $ 243 1,440 1,008 0.567 432 34,560 35,568 35,568 244 $ 8,720 23,384 23,384 2,616 6,104 17,280 0.507 245 -$50,467.92 Net present value 246

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