Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

13. DataRoint Engineering is considering the purchase of a new piece of equipment for $220,000. It has an eight-year midpoint of its asset depreciation range

image text in transcribed

13. DataRoint Engineering is considering the purchase of a new piece of equipment for $220,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $120,000 in nondepreciable working capital. $30,000 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 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The tax rate is 25 percent. The cost of capital must be computed based on the following: 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.) 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.) c. Determine the weighted average cost of capital, (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weiahnod avernge cast of aspita 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.) d-2. Should DataRoint purchase the new equipment? multiple choice - Yes - No

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

More Books

Students also viewed these Finance questions