The general manager of a Nebraska mining company has a chance to purchase a new drill at a total cost of $450,000. The recovery period is 5 years. Additional annual pretax cash inflow from operations is $75,000, the economic life of the drill is 5 years, there is no salvage value, the income tax rate is 40%, and the after-tax required rate of return is 16%. (Click the icon to view the present value factor table.) (Click the icon to view the present value annuity factor table.) Click the icon to view the selected MACRS depreciation schedule.) Read the requirements. Requirement 1. Compute the NPV, assuming MACRS depreciation for tax purposes. Should the company acquire the drill? Begin by calculating the present value of the after-tax cash savings from depreciation on the drill. (Round dollar amounts to the nearest whole number. Enter the present value factor to four decimal places, "X.XXXX.") Present Value of $1 Cash Total Present at 16% Inflow Value Present value of lump sum after-tax cash savings from depreciation Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 11 Present value of tax savings from depreciation Requirements - X A 1. Compute the NPV, assuming MACRS depreciation for tax purposes. Should the company acquire the drill? 2. Suppose the economic life of the drill is 6 years, which means that there will be a $75,000 cash inflow from operations in the sixth year. The recovery period is still 5 years. Should the company acquire the drill? Show computations. Data Table ho Present Value of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 .9709 .9615 9524 .9434. 9346 .9259 .9091 .8929 .8772 .8621 .8475 .8333 .8000 2 9426 .9246 .9070 .8900 .8734 8573 .8264 .7972 .7695 7432 .7182 .6944 .6400 3 .9151 .8890 .8638 .8396 .8163 .7938 .7513 .7118 .6750 .6407 .6086 .5787 .5120 4 .8885 .8548 .8227 7921 .7629 .7350 .6830 .6355 .5921 5523 .5158 .4823 4096 5 .8626 .8219 .7835 .7473 7130 6806 .6209 5674 .5194 4761 4371 .4019 .3277 6 .8375 .7903 .7462 .7050 6663 .6302 .5645 5066 .4556 .4104 .3704 .3349 2621 7 8131 .7599 .7107 .6651 .6227 .5835 .5132 4523 .3996 3538 .3139 .2791 2097 8 .7894 .7307 .6768 .6274 5820 5403 4665 4039 .3506 3050 .2660 .2326 .1678 9 .7664 .7026 .6446 5919 .5439 5002 4241 3606 .3075 2630 .2255 .1938 .1342 10 .7441 .6756 6139 5584 .5083 4632 .3855 3220 .2697 2267 .1911 .1615 1074 12 .7014 .6246 5568 .4970 .4440 .3971 .3186 2567 .2076 .1685 1372 1122 .0687 15 .6419 .5553 4810 .4173 .3624 .3152 .2394 .1827 .1401 1079 .0835 .0649 .0352 18 .5874 4936 4155 .3503 .2959 2502 1799 .1300 .0946 .0691 .0508 .0376 .0180 20 5537 4564 .3769 .3118 .2584 2145 1486 .1037 .0728 .0514 .0365 .0261 .0115 25 .4776 .3751 2953 2330 .1842 .1460 .0923 .0588 .0378 0245 .0160 .0105 .0038 28 .4371 .3335 2551 .1956 1504 . 1159 0693 .0419 .0255 .0157 .0097 .0061 .0019 30 .4120 .3083 .2314 .1741 .1314 .0994 .0573 .0334 .0196 .0116 0070 .0042 0012 i Data Table Present Value of Ordinary Annuity of $1 Period 3% 4% 5% 6% 7% 8% 10% 12% 14% 16% 18% 20% 25% 1 .9709 .9615 .9524 .9434 .9346 .9259 .9091 .8929 .8772 .8621 .8475 .8333 .8000 2 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7355 1.6901 1.6467 1.6052 1.5656 1.5278 1.4400 3 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.4869 2.4018 2.3216 2.2459 2.1743 2.1065 1.9520 4 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.1699 3.0373 2.9137 2.7982 2.6901 2.5887 2.3616 5 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.7908 3.6048 3.4331 3.2743 3.1272 2.9906 2.6893 6 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.3553 4.1114 3.8887 3.6847 3.4976 3.3255 2.9514 7 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 4.8684 4.5638 4.2883 4.0386 3.8115 3.6046 3.1611 8 7.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.3349 4.9676 4.6389 4.3436 4.0776 3.8372 3.3289 9 7.7861 7.4353 7.1078 6.8017 6.5152 6.2469 5.7590 5.3282 4.9464 4.6065 4.3030 4.0310 3.4631 10 8.5302 8.1109 7.7217 7.3601 7.0236 6.7101 6.1446 5.6502 5.2161 4.8332 4.4941 4.1925 3.5705 12 9.9540 9.3851 8.8633 8.3838 7.9427 7.5361 6.8137 6.1944 5.6603 5.1971 4.7932 4.4392 3.7251 15 11.9379 11. 1184 10.3797 9.7122 9.1079 8.5595 7.6061 6.8109 6.1422 5.5755 5.0916 4.6755 3.8593 18 13.7535 12.6593 11.6896 10.8276 10.0591 9.37198.2014 7.2497 6.4674 5.8178 5.2732 4.8122 3.9279 20 14.8775 13.5903 12.4622 11.4699 10.5940 9.8181 8.5136 7.4694 6.6231 5.9288 5.3527 4.8696 3.9539 25 17.4131 15.6221 14.0939 12.7834 11.6536 10.6748 9.0770 7.8431 6.8729 6.0971 5.4669 4.9476 3.9849 28 18.7641 16.6631 14.8981 13.4062 12.1371 11.0511 9.3066 7.9844 6.9607 6.1520 5.5016 4.9697 3.9923 30 19.6004 17.2920 15.3725 13.7648 12.4090 11.2578 9.4269 8.0552 7.0027 6.1772 5.5168 4.9789 3.9950 8 Data Table - X X 3-Year 5-Year 7-Year 10-Year Tax Year Property Property Property Property 1 33.33 % 20.00 % 14.29 % 10.00 % 2 44.45 32.00 24.49 18.00 3 14.81 19.20 17.49 14.40 4 7.41 11.52 12.49 11.52 11.52 8.93 9.22 5.76 8.92 7.37 No on 8.93 6.55 4.46 6.55 6.56 10 6.55 11 3.28