Question
DataPoint Engineering is considering the purchase of a new piece of equipment for $390,000. 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 $390,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $210,000 in nondepreciable working capital. Seventy-two thousand dollars 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 $230,000
2 190,000
3 160,000
4 145,000
5 110,000
6 100,000
The tax rate is 40 percent. The cost of capital must be computed based on the following:
Cost
(aftertax) Weights
Debt Kd 9.20% 20%
Preferred stock Kp 13.80 10%Common equity
Common Equity
(retained earnings) Ke 8.00 70%
What is the annual depreciation schedule?
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