Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $500,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.

		Earnings before Depreciation
Year 1		$	160,000
Year 2			215,000
Year 3			125,000
Year 4			89,000
Year 5			78,000
Year 6			44,000

The firm is in a 35 percent tax bracket and has a 12 percent cost of capital.

a. Calculate the net present value

Net present value

An asset was purchased three years ago for $110,000. It falls into the five-year category for MACRS depreciation. The firm is in a 40 percent tax bracket.

a. Compute the tax loss on the sale and the related tax benefit if the asset is sold now for $14,060.

Tax loss on the sale
Tax benefit

b. Compute the gain and related tax on the sale if the asset is sold now for $54,060

Taxable gain
Tax obligation