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 $ 170,000 2 150,000 3 120,000 4 105,000 5 90,000 6 80,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) Weights Debt Kd 6.50 % 30 % Preferred stock Kp 10.20 10 Common equity (retained earnings) Ke 15.00 60

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.)

year cash flow

1

2

3

4

5

6