Question

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost...

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $100,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.

Year 1 $ 50,000
Year 2 51,000
Year 3 34,000
Year 4 25,000


The firm is in a 30 percent tax bracket and has a cost of capital of 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.


a. Calculate the net present value. (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: __________

b. Under the net present value method, should Summit Petroleum Corporation purchase the asset?

Yes   
No
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1


0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost...
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $360,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 $ 175,000 Year 2 218,000 Year 3 83,000 Year 4 70,000 The firm is in a 35 percent tax bracket and has a cost of capital of 12 percent. Use Appendix B for an approximate answer but calculate...
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost...
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $200,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years Year 1 - $ 98,000 Year 2 - $119,000 Year 3 - $50,000 Year 4 - $48,000 The firm is in a 36 percent tax bracket and has a cost of capital of 7 percent. a. Calculate the net present value. b. Under...
Problem 12-27 MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an...
Problem 12-27 MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $300,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12. Year 1 $ 145,000 Year 2 191,000 Year 3 66,000 Year 4 64,000 The firm is in a 30 percent tax bracket and has a cost of capital of 5 percent....
Problem 12-28 MACRS depreciation and net present value [LO12-4] Oregon Forest Products will acquire new equipment...
Problem 12-28 MACRS depreciation and net present value [LO12-4] Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $500,000. 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 $ 160,000 Year 2 215,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $440,000. 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 $ 120,000 Year 2 190,000 Year 3 130,000 Year 4 71,000 Year 5 70,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $240,000. 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 $ 77,000 Year 2 78,000 Year 3 57,000 Year 4 39,000 Year 5 29,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
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 $ 110,000 Year 2 120,000 Year 3 75,000 Year 4 50,000 Year 5 56,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $480,000. 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 $ 150,000 Year 2 190,000 Year 3 120,000 Year 4 86,000 Year 5 76,000 Year...
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset...
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12–11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will cost $130,000, and it will produce earnings before depreciation and taxes of $36,000 per year for three years, and then $18,000 a year for seven more years. The firm has a tax rate of 36 percent. Assume the...
A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS....
A company purchases an asset that costs $10,000. This asset qualifies as 3-year property under MACRS. The company uses an after-tax discount rate of 12% and faces a 40% income tax rate. (a) Use the appropriate present value factors found in Appendix C, Table 1, to determine the present value of the depreciation deductions for this firm over the specified 4-year period. Refer to Exhibit 12.4. (Round "MACRS %" to 2 decimal places (i.e, 0.1234 = 12.34%), "PV factor" to...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT