Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

DataPoint 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).

DataPoint 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 1211, Table 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Amount 1 $ 179,000 2 156,000 3 126,000 4 111,000 5 93,000 6 83,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) Weights Debt Kd 7.50 % 30 % Preferred stock Kp 11.20 10 Common equity (retained earnings) Ke 16.00 60

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.)

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 DataPoint purchase the new equipment? multiple choice Yes No rev: 12_05_2019_QC_CS-192444 PrevQuestion 2 of 5 Total2 of 5Visit question mapNext

image text in transcribed
ssignment Check my work DataPoint 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 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Amount $179,000 156,000 126,000 111,000 93,000 83,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Debt Preferred stock Common equity (retained earnings) Ka Cost (aftertax) 7.500 11.20 16.00 Weights 308 10 60 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

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

Finance for Executives Managing for Value Creation

Authors: Gabriel Hawawini, Claude Viallet

4th edition

9781133169949, 538751347, 978-0538751346

More Books

Students also viewed these Finance questions