Question: Problem 12-27 MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost

Problem 12-27 MACRS depreciation and net present value [LO12-4]

The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $360,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.


Year 1	$	170,000
Year 2		227,000
Year 3		80,000
Year 4		72,000

The firm is in a 30 percent tax bracket and has a cost of capital of 9 percent. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)

b. Under the net present value method, should Summit Petroleum Corporation purchase the asset?

multiple choice

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Problem 10-19A Using net present value and internal rate of return to evaluate investment opportunities Dwight Donovan, the president of Donovan Enterprises, is considering two investment opportunin...

Problem 12-27 MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $300,000 and the...

Problem 12-27 MACRS depreciation and net present value [L012-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $120,000 and the...

Problem 1 2 - 2 5 ( Algo ) MACRS depreciation and net present value [ LO 1 2 - 4 ] The Summit Petroleum Corporation will purchase an asset that qualifies for three - year MACRS depreciation. The cost...

Problem 1 2 - 2 5 ( Static ) MACRS depreciation and net present value [ LO 1 2 - 4 ] The Summit Petroleum Corporation will purchase an asset that qualifies for three - year MACRS depreciation. The...

Problem 1 2 - 2 5 ( Algo ) MACRS depreciation and net present value [ LO 1 2 - 4 ] The Summit Petroleum Corporation will purchase an asset that qualifies for three - year MACRS depreclation. The cost...

Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4] The Surnmit Petroleum Corporation will purchase an asset that qualifes for three-yeor MACRS depreciation. The cost is $390,000...

Table 12-11 Categories for depreciation write-off Class 3-year MACRS All property with ADR midpoints of four years or less. Autos and light trucks are excluded from this category. 5-year MACRS...

Problem 12-27 MACRS depreciation and net present value L012-4] provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12 Year s 98,000 Year...

Problem 12-29 MACRS depreciation and net present value (L012-4] Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range...

Andrew Golden works as a personal secretary for Jackson Worldwide. During 2022 he reports taxable income of $200,000 which can be broken down into the following sources: $140,000 of wage income ...

A $2875.40 investment grew to $3000 after eight months. What annual rate of simple interest did it earn?

What is the debate concerning the conservation of resources and the use of resources?

A company is preparing completing their Cash Budget. The following data has been prepared for cash receipts and payments. January February March Cash receipts $1,061,200 $1,182,400 $1,091,700 Cash...