DataPoint Engineering is considering the purchase of a new piece of equipment for $270,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $170,000 in nondepreciable working capital. Forty-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. 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 Amount $194,000 166,000 136,00 121,000 98,eee 88,000 6 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) Weights Debt Preferred stock Common equity (retained earnings) 10 12.60 17.00 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.) Ched Weights Debt Preferred stock Common equity (retained earnings) Cost (aftertax) 6.sex 12.60 17.00 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 @ 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 c. Determine the weighted average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Weighted average cost of capital d-1. Determine the net present value. (Use the WACC from part crounded 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.) Net present value d-2. Should DataPoint purchase the new equipment? Yes No Table 12-11 Categories for depreciation write-off Class 3-year MACRS 5-year MACRS 7-year MACRS 10-year MACRS 15-year MACRS All property with ADR midpoints of four years or less. Autos and light trucks are excluded from this category Property with ADR midpoints of more than 4, but less than 10 years. Key assets in this category include automobiles, light trucks, and techno- logical equipment such as computers and research-related properties. Property with ADR midpoints of 10 years or more, but less than 16 years. Most types of manufacturing equipment would fall into this category, as would office furniture and fixtures. Property with ADR midpoints of 16 years or more, but less than 20 years. Petroleum refining products, railroad tank cars, and manufactured homes fall into this group. Property with ADR midpoints of 20 years or more, but less than 25 years. Land improvement, pipeline distribution, telephone distribution, and sewage treatment plants all belong in this category. Property with ADR midpoints of 25 years or more (with the exception of real estate, which is treated separately). Key Investments in this cat- egory include electric and gas utility property and sewer pipes. Residential rental property if 80% or more of the gross rental income is from nontransient dwelling units (eg, an apartment buildingi: low- Income housing Nonresidential real property that has no ADR class life or whose class life is 27.5 years or more Nonresidential real property placed in service after May 12. 1993 20-year MACRS 27.5-year MACRS 31.5-year MACRS 39-year MACRS Table 12-12 Depreciation percentages (expressed in decimals), Depreciation Year 7-Year MACRS 10-Year MACRS 0.143 0.245 3-Year 5-Year MACRS MACRS 0.333 0.200 0.445 0.320 0.148 0.192 0.074 0.115 0.115 0.058 0.175 0.057 0.125 0.089 0.089 0.089 0.045 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 15-Year 20-Year MACRS MACRS 0.050 0.038 0.095 0.072 0.086 0.067 0.077 0.062 0.069 0.062 0.053 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.059 0.045 0.030 0.045 0.045 0.045 0,045 0.017 1.000 1.000 0.045 1.000 1.000 1.000 1.000 Appendix B Present value of $1, PV5 PV FV la Percent 6% 0.943 0.890 0.840 0.747 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 11% 0.901 0.812 0.731 0.659 0.593 0.535 0482 0.434 0.962 0.925 0.889 0.855 0822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 066 0.935 0.873 0.816 0.763 0.713 0.666 0623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.463 0.422 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0286 0.352 0.527 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0605 0.587 0570 0.554 0.478 0.412 0.307 0.228 0.389 0.312 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 0.356 0.350 0.319 0.290 0.286 0.258 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0059 0.033 0.01 0.003 0.326 0.442 P 0.429 0.397 0.368 0.340 0315 0.292 0.270 0.250 0263 0.232 0.417 0.239 0339 0219 0.31 0.296 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.331 0.312 0277 0.232 0.513 0.494 0.475 0.456 0.375 0.308 0 208 NR 8 0.209 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.015 0.005 0.820 0.780 0.742 0.258 0.184 0.131 0.067 0.198 0.180 0.164 0.149 0092 0.057 0.022 0.009 0.215 0.146 0.099 0.046 0.021 0.174 0.097 0608 005 0013