Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $330,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years.

Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Earnings before Depreciation Year 1 $ 111,000 Year 2 130,000 Year 3 95,000 Year 4 57,000 Year 5 48,000 Year 6 31,000

The firm is in a 30 percent tax bracket and has a 12 percent cost of capital.

a. Calculate the net present value.

b. Under the net present value method, should Oregon Forest Products purchase the equipment asset?

Yes No