Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation
Question:
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. The asset will cost $120,000, and it will produce earnings before depreciation and taxes of $37,000 per year for three years, and then $19,000 a year for seven more years. The firm has a tax rate of 25 percent. With a cost of capital of 12 percent, should it purchase the asset? Use the net present value method. In doing your analysis, if you have years in which there is no depreciation, merely enter a zero for depreciation.
Step by Step Answer:
Foundations Of Financial Management
ISBN: 9781264097623
18th Edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen