Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...

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Oregon Forest Products will acquire new equipment that fallsunder the five-year MACRS category. The cost is $300,000. If theequipment is purchased, the following earnings before depreciationand taxes will be generated for the next six years. Use Table12-12. Use Appendix B for an approximate answer but calculate yourfinal answer using the formula and financial calculator methods.Earnings before Depreciation Year 1 $ 80,000 Year 2 98,000 Year 370,000 Year 4 45,000 Year 5 36,000 Year 6 26,000 The firm is in a30 percent tax bracket and has a 12 percent cost of capital. a.Calculate the net present value. (A negative amount should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to 2 decimal places.) b. Under the netpresent value method, should Oregon Forest Products purchase theequipment asset? Yes No

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3.8 Ratings (720 Votes)

NPV is 38618296NoSince NPV is negative do not purchase the equipmentStep 1OCF See Answer

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Oregon Forest Products will acquire new equipment that fallsunder the five-year MACRS category. The cost is $300,000. If theequipment is purchased, the following earnings before depreciationand taxes will be generated for the next six years. Use Table12-12. Use Appendix B for an approximate answer but calculate yourfinal answer using the formula and financial calculator methods.Earnings before Depreciation Year 1 $ 80,000 Year 2 98,000 Year 370,000 Year 4 45,000 Year 5 36,000 Year 6 26,000 The firm is in a30 percent tax bracket and has a 12 percent cost of capital. a.Calculate the net present value. (A negative amount should beindicated by a minus sign. Do not round intermediate calculationsand round your answer to 2 decimal places.) b. Under the netpresent value method, should Oregon Forest Products purchase theequipment asset? Yes No