1. Oregon Forest Products will acquire new equipmentthat falls under the five-year MACRS category. The cost is$300,000. If the equipment is purchased, the following earningsbefore depreciation and taxes will be generated for the next sixyears. Use Table 12-12. Use Appendix B for an approximate answerbut calculate your final answer using the formula and financialcalculator methods.

		Earnings before Depreciation
Year 1		$	82,000
Year 2			110,000
Year 3			80,000
Year 4			51,000
Year 5			45,000
Year 6			28,000

The firm is in a 35 percent tax bracket and has a 11 percent costof 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 2 decimalplaces.)
  

2.

The Spartan Technology Company has a proposed contractwith the Digital Systems Company of Michigan. The initialinvestment in land and equipment will be $370,000. Of this amount,$250,000 is subject to five-year MACRS depreciation. The balance isin nondepreciable property. The contract covers six years; at theend of six years, the nondepreciable assets will be sold for$120,000. The depreciated assets will have zero resale value. UseTable 12-12. Use Appendix B for an approximate answer but calculateyour final answer using the formula and financial calculatormethods.

The contract will require an additional investment of $58,000 inworking capital at the beginning of the first year and, of thisamount, $38,000 will be returned to the Spartan Technology Companyafter six years.

The investment will produce $90,000 in income before depreciationand taxes for each of the six years. The corporation is in a 30percent tax bracket and has a 5 percent cost of capital.

a. Calculate the net present value.(Do notround intermediate calculations and round your answer to 2 decimalplaces.)
  

3. An asset was purchased three years ago for $200,000.It falls into the five-year category for MACRS depreciation. Thefirm is in a 40 percent tax bracket. Use Table 12–12.

a. Compute the tax loss on the sale and therelated tax benefit if the asset is sold now for $23,060.(Input all amounts as positive values. Do not roundintermediate calculations and round your answers to wholedollars.)
  

b. Compute the gain and related tax on the sale ifthe asset is sold now for $72,060. (Input all amounts aspositive values. Do not round intermediate calculations and roundyour answers to whole dollars.)
  

4.

DataPoint Engineering is considering the purchase of anew piece of equipment for $340,000. It has an eight-year midpointof its asset depreciation range (ADR). It will require anadditional initial investment of $160,000 in nondepreciable workingcapital. Sixty thousand dollars of this investment will berecovered after the sixth year and will provide additional cashflow for that year. Income before depreciation and taxes for thenext six are shown in the following table. Use Table 12–11, Table12–12. Use Appendix Bfor an approximate answer but calculate yourfinal answer using the formula and financial calculatormethods.

Year	Amount
1	$	215,000
2		180,000
3		150,000
4		135,000
5		105,000
6		95,000

The tax rate is 30 percent. The cost of capital must be computedbased on the following:

		Cost (aftertax)			Weights
Debt	Kd		11.30	%		25	%
Preferred stock	Kp		12.20			10
Common equity (retained earnings)	Ke		17.00			65

a. Determine the annual depreciation schedule.(Do not round intermediate calculations. Round yourdepreciation base and annual depreciation answers to the nearestwhole dollar. Round your percentage depreciation answers to 3decimal places.)
  

b. Determine the annual cash flow for each year.Be sure to include the recovered working capital in Year 6.(Do not round intermediate calculations and round youranswers to 2 decimal places.)
  

c. Determine the weighted average cost of capital.(Do not round intermediate calculations. Enter your answeras a percent rounded to 2 decimal places.)
  

d-1. Determine the net present value. (Usethe WACC from part c rounded to 2 decimal places as a percent asthe cost of capital (e.g., 12.34%). Do not round any otherintermediate calculations. Round your answer to 2 decimalplaces.)