Question
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. If the equipment is purchased, the following
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $300,000. 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 | $ | 82,000 | |||
| Year 2 | 110,000 | ||||
| Year 3 | 80,000 | ||||
| Year 4 | 51,000 | ||||
| Year 5 | 45,000 | ||||
| Year 6 | 28,000 | ||||
The firm is in a 25 percent tax bracket and has a 11 percent cost of capital.
a. Calculate the net present value.
b. Under the net present value method, should Oregon Forest Products purchase the equipment asset?
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Exploring Economics
Authors: Robert L Sexton
5th Edition
978-1439040249, 1439040249
