Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The...
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Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $320,000. 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 | $ | 83,000 | |||
| Year 2 | 120,000 | ||||
| Year 3 | 85,000 | ||||
| Year 4 | 52,000 | ||||
| Year 5 | 46,000 | ||||
| Year 6 | 29,000 | ||||
|
| |||||
The firm is in a 40 percent tax bracket and has a 8 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 vaule: b. Under the net present value method, should Oregon Forest Products purchase the equipment asset?
| Yes | |
| No |
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