Question

Oregon Forest Products wil 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 Apendix 3 for an approximate answer but calculate your final answer using the formula and financial calculator methods Depreciation $112.000 105.000 2009 The firm is in a 30 percent tax bracket and has a 14 percent cost of capital a. Calculate the net prosent 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 repon Forest Products purchase the equipment ? . Under the net present Value method should Yes O NO

Answer 1

year Earnings Before Depreciation depreciation Ebt tax@30% EAT depreciation Operating Cash flows cost Cash flows PV@14% Present value 112,000.00 $ 60,000.00 $ 52,000.00 $ 15,600.00 $ 36,400.00 $ 60,000.00 $ 96,400.00 $ 105,000.00 $ 96,000.00 $ 9,000.00 $ 2,700.00 $ 6,300.00 $ 96,000.00 $ 102,300.00 $ 82,000.00 $ 57,600.00 $ 24,400.00 $ 7,320.00 $ 17,080.00 $ 57,600.00 $ 74,680.00 $ 53,000.00 34,560.00 18,440.00 5,532.00 12,908.00 34,560.00 47,468.00 $ $ $ $ $ $ $ 37,000.00 34,560.00 2,440.00 732.00 1,708.00 34,560.00 36,268.00 $ $ $ $ $ $ $ 11,000.00 17,280.00 (6,280.00) (1,884.00) (4,396.00) 17,280.00 357,116.00 $ (300,000.00) (300,000.00) $ 1.0000 (300,000.00) $ 96,400.00 0.8772 84,561.40 102,300.00 $ 0.7695 78,716.53 $ 74,680.00 $ 0.6750 50,406.87 $ 47,468.00$ 0.5921 28,104.87 $ 36,268.00 $ 0.5194 18,836.46 $ 357,116.00 0.4556 NPV 162,697.25 $ 123,323.38 Purchase the equipment $ 1 Year MACRS Rate cost Depreciation 2 0.32 300,000.00 $ 96,000.00 $ 3 0.192 300,000.00 57,600.00 4 0.1152 300,000.00 $ 34,560.00 $ 5 0.1152 300,000.00 $ 34,560.00 $ 300,000.00 $ 60,000.00 $ $ $ 0.0576 300,000.00 17,280.00 c=a*b