The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The...

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The Spartan Technology Company has a proposed contract with theDigital Systems Company of Michigan. The initial investment in landand equipment will be $290,000. Of this amount, $270,000 is subjectto five-year MACRS depreciation. The balance is in nondepreciableproperty. The contract covers six years; at the end of six years,the nondepreciable assets will be sold for $20,000. The depreciatedassets will have zero resale value. Use Table 12-12. Use Appendix Bfor an approximate answer but calculate your final answer using theformula and financial calculator methods.

The contract will require an additional investment of $61,000 inworking capital at the beginning of the first year and, of thisamount, $41,000 will be returned to the Spartan Technology Companyafter six years.

The investment will produce $100,000 in income before depreciationand taxes for each of the six years. The corporation is in a 25percent tax bracket and has a 15 percent cost of capital.

a. Calculate the net present value. (Donot round intermediate calculations and round your answer to 2decimal places.)
Net present value= _?_

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4.0 Ratings (727 Votes)

Net present value 579432 Please see the table below Please be guided by the second column titled Linkage to understand the mathematics The last row highlighted in yellow is your answer Figures in parenthesis mean See Answer

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The Spartan Technology Company has a proposed contract with theDigital Systems Company of Michigan. The initial investment in landand equipment will be $290,000. Of this amount, $270,000 is subjectto five-year MACRS depreciation. The balance is in nondepreciableproperty. The contract covers six years; at the end of six years,the nondepreciable assets will be sold for $20,000. The depreciatedassets will have zero resale value. Use Table 12-12. Use Appendix Bfor an approximate answer but calculate your final answer using theformula and financial calculator methods.The contract will require an additional investment of $61,000 inworking capital at the beginning of the first year and, of thisamount, $41,000 will be returned to the Spartan Technology Companyafter six years.The investment will produce $100,000 in income before depreciationand taxes for each of the six years. The corporation is in a 25percent tax bracket and has a 15 percent cost of capital.a. Calculate the net present value. (Donot round intermediate calculations and round your answer to 2decimal places.)Net present value= ___?___