Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 1211 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will cost $210,000, and it will produce earnings before depreciation and taxes of $68,000 per year for three years, and then $31,000 a year for seven more years. The firm has a tax rate of 25 percent. Assume the cost of capital is 13 percent. In doing your analysis, if you have years in which there is no depreciation, merely enter a zero for depreciation. Use Table 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value b. Based on the net present value, should Universal Electronics purchase the asset? Yes No Appendix B Present value of $1, PVF PV = FV 1 (1+1" Percent Period 1% 2% 3% 4% 8% 11% 12% 5% 0.952 1 ......... 0.971 0.980 0.961 0.962 0.925 0.926 0.857 0.901 0.812 0.893 0.797 2 0.907 3 0.794 0.990 0.980 0.971 0.961 0.951 0.942 0.933 4 0.942 0.924 0.906 0.943 0.915 0.888 0.863 0.837 0.712 0.636 0.864 0.823 0.784 0.746 5 0.731 0.659 0.593 0.535 . 0.735 0.681 0.630 0.583 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.567 0.507 6 0.888 7 0.871 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.482 0.452 8 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.540 0.434 0.404 0.923 0.914 0.905 0.853 0.837 0.813 0.789 0.766 0.744 0.722 0.711 0.677 0.645 0.614 9 0.500 0.463 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 10 0.820 0.361 0.322 0.287 0.257 11 0.585 0.429 0.896 0.887 0.391 0.352 0.317 0.286 0.258 0.232 12 0.557 0.397 0.388 0.356 0.326 0.299 13 0.879 0.701 0.681 0.661 0.415 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.368 0.530 0.505 0.229 0.205 14 0.870 0.577 0.388 0.340 15 0.642 0.555 0.481 0.315 0.275 0.183 0.861 0.853 16 0.623 0.605 0.458 0.436 0.417 0.394 0.371 0.292 0.270 0.252 0.231 0.209 0.188 0.170 17 0.844 0.534 0.513 0.494 0.475 18 0.416 0.350 0.836 0.828 0.820 0.700 0.686 0.673 0.362 0.339 0.317 0.296 0.277 0.258 0.184 0.131 0.587 0.570 0.554 19 0.212 0.194 0.250 0.232 0.215 0.153 0.138 0.163 0.146 0.130 0.116 0.104 0.396 0.164 0.149 20 0.377 0.124 25 0.610 0.295 0.456 0.375 0.308 0.146 0.780 0.742 0.478 0.412 0.074 0.331 0.312 0.233 0.174 0.097 0.054 0.178 0.116 0.075 0.059 0.033 30 0.552 0.099 0.231 0.142 0.092 0.057 0.022 0.009 40 0.067 0.046 0.672 0.608 0.011 0.453 0.372 0.307 0.228 0.208 0.141 0.044 0.015 0.005 0.032 0.013 50 0.087 0.034 0.021 0.003 Appendix B (concluded) Present value of $1 1 Percent Period 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 1 0.885 0.877 0.870 0.862 0.855 0.847 0.833 0.769 0.741 0.714 0.667 0.840 0.706 0.800 0.640 0.783 0.756 0.743 0.731 0.718 0.694 0.592 0.510 N M 0.769 0.675 0.592 0.693 0.444 0.296 0.658 0.572 0.641 0.552 0.624 0.534 0.609 0.515 0.593 0.499 0.579 0.482 0.512 0.410 0.549 0.406 0.301 0.455 0.350 0.364 0.260 4 . 198 0.476 0.456 0.437 0.402 0.269 0.223 0.132 5 6 0.613 0.543 0.480 0.425 0.519 0.456 0.497 0.432 0.419 0.352 0.328 0.262 0.186 0.133 0.410 0.390 0.370 0.335 0.207 0.165 0.088 7 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.122 0.095 0.059 0.159 0.123 8 0.351 0.327 0.305 0.285 0.249 0.233 0.168 .091 0.068 0.039 0.376 0.333 9 0.284 0.263 0.243 0.266 0.225 0.191 0.209 0.194 0.134 .067 .048 0.308 0.270 0.026 0.094 .073 10 0.295 0.247 0.227 0.208 0.176 0.162 .050 .035 0.017 0.107 0.086 11 0.261 0.237 0.178 0.162 0.148 0.135 0.056 .037 0.025 0.012 0.195 0.168 12 0.231 0.124 0.018 0.008 0.208 0.182 0.152 0.130 0.215 0.187 0.163 0.141 0.123 0.1 12 0.093 13 0.069 0.055 0.204 0.137 0.116 0.099 0.145 0.104 .043 .033 0.025 0.005 0.027 .020 0.015 0.011 .013 0.009 14 0.181 0.125 0.111 0.088 0.078 0.044 0.003 15 0.160 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.035 0.020 0.006 0.002 16 0.093 0.062 0.054 .028 0.015 0.002 .081 0.069 0.008 0.006 17 0.023 0.001 0.141 0.125 0.111 0.098 0.087 0.107 0.093 0.081 0.070 0.108 0.095 0.083 18 0.071 0.060 0.051 0.043 0.080 0.069 0.060 0.052 0.044 0.037 0.005 0.003 0.002 0.002 0.045 0.038 0.031 0.059 0.051 0.012 0.009 0.007 0.001 .018 .014 0.005 0.003 19 20 .073 0.061 0.051 0.043 0.037 0.031 .026 0.012 0.005 0.002 0.001 25 0.047 0.038 0.030 0.024 0.020 0.013 0.010 0.004 0.001 0.001 30 0.026 0.008 0.001 0.020 0.005 0.015 0.004 0.016 0.007 0.001 0.012 0.003 0.009 0.002 0.005 0.001 0.004 0.001 40 50 0.002 0.001 0.001 0.001