Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
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Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $220,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Earnings before Year 1 Depreciation $ 76,000 73,000 Year 2 Year 3 56,000 Year 4 38,000 Year 5 27,000 Year 6 22,000 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital. a. Calculate the net present value. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole dollar amount.) Net present value b. Under the net present value method, should Oregon Forest Products purchase the equipment asset? Yes O No Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $220,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Earnings before Year 1 Depreciation $ 76,000 73,000 Year 2 Year 3 56,000 Year 4 38,000 Year 5 27,000 Year 6 22,000 The firm is in a 25 percent tax bracket and has a 12 percent cost of capital. a. Calculate the net present value. (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole dollar amount.) Net present value b. Under the net present value method, should Oregon Forest Products purchase the equipment asset? Yes O No
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Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Amount in Earning ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
Posted Date:
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