17. value: 4.00 points DataPoint Engineering is considering the purchase of a new piece of equipment for $270,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $170,000 in nondepreciable working capital. Forty-two 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 are shown in the following table. Use Table 12-11, Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 Amount $194,000 166,000 136,000 121,000 98,000 88,000 4 6 The tax rate is 40 percent. The cost of capital must be computed based on the following: Cost (aftertax) 6.80% 12.60 17.00 Weights 40% Debt Preferred stock Common equity (retained earnings) 15 45 a. Determine the annual depreciation schedule. (Do not round intermediate calculations. Round your depreciation base and annual depreciation answers to the nearest whole dollar. Round your percentage depreciation answers to 3 decimal places.) Year Depreciation Base Percentage Depreciation Annual Depreciation b. Determine the annual cash flow for each year. Be sure to include the recovered working capital in Year 6. (Do not round intermediate calculations and round your answers to 2 decimal places.) Year Cash Flow c. Determine the weighted average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighted average cost of capital % d-1. Determine the net present value. (Use the WACC from part c rounded to 2 decimal places as a percent as the cost of capital (e.g., 12.34%). Do not round any other intermediate calculations. Round your answer to 2 decimal places.) Net present value S 18,536.90 d-2. Should DataPoint purchase the new equipment? Yes Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year 5-Year 7-Year 10-Year 15-Year 20-Year MACRS MACRSMACRS MACRS MACRS MACRS ............ 0.333 0.445 0.148 0.074 0.200 0.320 0.192 0.115 0.115 0.058 4 ............ 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 0.038 0.072 0.067 0.062 0.057 0.053 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 1.000 1.000 1.000 1.000 1.000 Appendix B Present value of $1, PV, PV = FV Period 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.665 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.375 0.308 0.208 0.141 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 Percent 6% 7% 0.943 0.935 0.890 0.873 0.840 0.816 0.792 0.763 0.747 0.713 0.705 0.666 0.623 0.627 0.582 0.592 0.544 0.558 0.508 0.527 0.475 0.497 0.444 0.469 0.415 0.442 0.388 0.417 0.362 0.394 0.339 0.371 0.317 0.350 0.296 0.331 0.277 0.312 0.258 0.233 0.184 0.174 0.131 0.097 0.067 0.054 0.034 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.146 0.099 0.046 0.021 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.013 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.022 0.009 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.015 0.005 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.728 0.163 0.820 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 0.146 0.130 0.116 0.104 0.059 0.033 0.011 0.003 0.780 0.742 0.672 0.608 Appendix B (concluded) Period 16% 0.862 0.743 0.641 0.552 0.476 0.410 13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 0.047 0.026 0.008 0.002 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.038 0.020 0.005 0.001 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.093 0.081 0.070 0.061 0.030 0.015 0.004 0.001 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.0010 17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043 0.020 Percent 18% 19% 20% 0.847 0.840 0.833 0.7180.706 0.694 0.609 0.593 0.579 0.515 0.499 0.482 0.437 0.419 0.402 0.370 0.352 0.335 0.314 0.296 0.279 0.266 0.2490.233 0.225 0.209 0.194 0.191 0.176 0.162 0.162 0.148 0.135 0.137 0.124 0.112 0.116 0.104 0.093 0.099 0.088 0.078 0.084 0.074 0.065 0.071 0.062 0.054 0.060 0.052 0.045 0.051 0.044 0.038 0.043 0.037 0.031 0.037 0.031 0.026 0.016 0.013 0.010 0.007 0.005 0.004 0.001 0.001 0.0010 0 0 0 25% 0.800 0.640 0.512 0.410 0.328 0.262 0.210 0.168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 0.0010 0 0 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.001 35% 0.741 0.549 0.406 0.301 0.223 0.165 0.122 0.091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.001 40% 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0.002 0