# Question

DataPoint Engineering is considering the purchase of a new piece of equipment for $240,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $140,000 in nondepreciable working capital. Thirty-five thousand dollars of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six years will be:

Year Amount

1 ......... $185,000

2 ......... 160,000

3 ......... 130,000

4 ......... 115,000

5 ......... 95,000

6 ......... 85,000

The tax rate is 40 percent. The cost of capital must be computed based on the following (round the final value to the nearest whole number):

a. Determine the annual depreciation schedule.

b. Determine annual cash flow. Include recovered working capital in the sixth year.

c. Determine the weighted average cost of capital.

d. Determine the net present value. Should DataPoint purchase the newequipment?

Year Amount

1 ......... $185,000

2 ......... 160,000

3 ......... 130,000

4 ......... 115,000

5 ......... 95,000

6 ......... 85,000

The tax rate is 40 percent. The cost of capital must be computed based on the following (round the final value to the nearest whole number):

a. Determine the annual depreciation schedule.

b. Determine annual cash flow. Include recovered working capital in the sixth year.

c. Determine the weighted average cost of capital.

d. Determine the net present value. Should DataPoint purchase the newequipment?

## Answer to relevant Questions

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $24,800. A new piece ...If risk is to be analyzed in a qualitative way, place the following investment decisions in order from the lowest risk to the highest risk:a. New equipmentb. New marketc. Repair of old machineryd. New product in a foreign ...Sampson Corp. is evaluating the introduction of a new product. The possible levels of unit sales and the probabilities of their occurrence are given.a. What is the expected value of unit sales for the new product?b. What is ...Mountain Ski Corp. was set up to take large risks and is willing to take the greatest risk possible. Lakeway Train Co. is more typical of the average corporation and is risk-averse.a. Which of the following four projects ...When returns from a project can be assumed to be normally distributed, such as those shown in Figure (represented by a symmetrical, bell-shaped curve), the areas under the curve can be determined from statistical tables ...Post your question

0