Answered step by step
Verified Expert Solution
Question
1 Approved Answer
DataPoint Engineering is considering the purchase of a new piece of equipment for $330,000. It falls into the 5-year cateogry of the MACRS depreciation schedule.
DataPoint Engineering is considering the purchase of a new piece of equipment for $330,000. It falls into the 5-year cateogry of the MACRS depreciation schedule. It will require an additional initial investment of $150,000 in nondepreciable working capital. $57,500 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. Year Amount 1 $212,000 2 178,000 3 148,000 133,000 5 104,000 6 94,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) Weights Debt Kd 10.30% 55% Preferred stock K 14.20 10 Common equity (retained earnings) Ke 19.00 35 a. Determine the weighted average cost of capital. Note: Do not round intermediate calculations and round your answer to 2 decimal places. b. Determine the net present value. Note: Do not round intermediate calculations and round your answer to 2 decimal places. For De net input a dollar sign
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started