The president of Amazing Games, an online gaming company, is considering the purchase of some equipment used for the development of new games. The cost is $525,000, the economic life and the recovery period are both 7 years, and there is no terminal disposal value. Annual pretax cash inflows from operations would increase by $180,000, giving a total 7-year pretax savings of $1.260,000. The income tax rate is 30%, and the required after-tax rate of return is 14%. (Click the icon to view the present value factor table.) Click the icon to view the present value annuity factor table.) Read the requirements Requirement 1. Compute the NPV, assuming straight-line depreciation of $75,000 yearly for tax purposes. Should Amazing Games acquire the equipment? Begin by computing the net present value (NPV) of the equipment investment. (Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value. Enter the present value factor to four decimal places, "XXXXX.") Present Value of Annual Cash Total Present Ordinary Annuity of $1 at 7 years, 14% Inflow Value Net present value: Present value of annuity of equal annual: After-tax cash flows from operations After-tax cash savings from depreciation Less: Initial investment per year = per year = Net present value Should Amazing Games acquire the equipment? Amazing Games (1) acquire the equipment because the NPV of the investment is (2) Requirement 2. Suppose the asset will be fully depreciated at the end of year 7 but can be sold for $60,000 cash. Should Amazing Games acquire the equipment? Show computations. Begin by calculating the net present value of the equipment in this scenario. (Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value. Enter the present value factor to four decimal places, "X.XXXX.") Present Value of $1 Cash Total Present at 7 years, 14% Inflow Value NPV of investment from requirement 1 Present value of lump sum after-tax cash flow from disposal of equipment at the end of year 7 Net present value Should Amazing Games acquire the equipment? Amazing Games (3) acquire the equipment because the NPV of the investment under this scenario is (4) Requirement 3. Ignore number 2. Suppose the required after-tax rate of return is 8% instead of 14%. Should Amazing Games acquire the equipment? Show computations Begin by calculating the net present value of the equipment in this scenario. (Round dollar amounts the nearest whole number. Use a minus sign or parentheses for a negative net present value. Enter the present value factor to four decimal places, "XXXXX.") Present Value of Ordinary Annuity of $1 at 7 years, 8% Annual Cash Total Present Inflow Value Net present value: Present value of annuity of equal annual: After-tax cash flows from operations After-tax cash savings from depreciation Less: Initial investment per year = X per year = Net present value Should Amazing Games acquire the equipment? Amazing Games (5) acquire the equipment because the NPV of the investment under this scenario is (6) 1: Data Table 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 67506407 .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 4371 4019 .3277 5194 4761 4556 4104 6 .8375 .7903 .7462 .7050 -6663 .6302 5645 5066 3704 3349 .2621 7 .8131 7599 7107 .6651 6227 5835 15132 4523 3996 3538 3139 2791 .2097 8 .7894 7307 .6768 6274 5403 4665 4039 3506 3050 2660 .2326 .1678 5820 5439 9 .7664 .7026 6446 -5919 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 0835 0649 .0352 .1401 1079 .0946 0691 18 .5874 4936 4155 3503 2959 2502 1799 1300 .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 2551 1956 1159 0693 .0419 .0255 .0157 0097 .0061 3335 3083 .1504 1314 .0019 .0012 30 4120 2314 1741 .0994 .0573 .03340196 0116 .0070 .0042 2: 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 73601 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 9.3719 8.2014 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 3: Requirements 1. Compute the NPV, assuming straight-line depreciation of $75,000 yearly for tax purposes. Should Amazing Games acquire the equipment? 2. Suppose the asset will be fully depreciated at the end of year 7 but can be sold for $60.000 cash. Should Amazing Games acquire the equipment? Show computations. 3. Ignore number 2. Suppose the required after-tax rate of return is 8% instead of 14%. Should Amazing Games acquire the equipment? Show computations. (1) O should O should not (2) O positive O negative (3) Oshould O should not (4) O negative O positive (5) O should not O should (6) O positive O negative