Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 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 12-12. 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 O No Table 12-11 Categories for depreciation write-off Class 3-year MACRS All property with ADR midpoints of four years or less. Autos and light trucks are excluded from this category 5-year MACRS Property with ADR midpoints of more than 4, but less than 10 years. Key assets in this category include automobiles, light trucks, and techno- logical equipment such as computers and research-related properties. 7-year MACRS Property with ADR midpoints of 10 years or more, but less than 16 years. Most types of manufacturing equipment would fall into this category, as would office furniture and fixtures. 10-year MACRS Property with ADR midpoints of 16 years or more, but less than 20 years. Petroleum refining products, railroad tank cars, and manufactured homes fall into this group. 15-year MACRS Property with ADR midpoints of 20 years or more, but less than 25 years. Land improvement, pipeline distribution, telephone distribution, and sewage treatment plants all belong in this category 20-year MACRS Property with ADR midpoints of 25 years or more (with the exception of real estate, which is treated separately). Key investments in this cat- egory include electric and gas utility property and sewer pipes. 27.5-year Residential rental property if 80% or more of the gross rental income is MACRS from nontransient dwelling units (0.9, an apartment building); low- Income housing, 31.5-year Nonresidential real property that has no ADR class Ife or whose class MACRS life is 27.5 years or more. 39-year MACRS Nonresidential real property placed in service after May 12, 1993, Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year MACRS 10-Year MACRS 15-Year MACRS 20-Year MACRS 7-Year MACRS 0.143 5-Year MACRS 0.200 0.320 0.192 0.115 0.333 0.445 0.148 0.074 0.245 5 0.115 0.175 0.125 0.089 0.089 0.089 0.045 6 0.058 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.005 0.065 0.033 7 B 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 10 0.038 0,072 0.067 0.062 0.057 0.053 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 12. 13 14 15 16 17 18 19 20 21 1.000 1.000 1.000 1.000 1.000 4 Appendia Present of S1, PV, PVFV 12.10 Porcent 6% IN Period 1060 0812 2 0970 0943 0915 On 0863 4 5 6 0.000 0961 0542 0.924 0.006 OS 0.871 0.85 0.837 0.820 0804 0.78 0.173 O 0.926 0.857 0.794 0.735 0.681 0630 583 0.540 0.500 0.463 0429 0.90 0.900 0.971 0.06 0.95 0.942 0933 0.923 0914 0.905 O. 0.002 0079 170 0.861 0.85 0.044 0.836 0.821 0820 0.780 0.742 0672 0.60 0 9 10 11 12 3 0.731 0659 0593 0535 0.482 0.434 0.391 0.352 031 0952 0907 0.164 0.823 0.784 0746 0711 0677 0.645 0614 Osas 0.557 0.530 0.505 0481 0.450 0436 0.416 0.306 0.362 0.925 OBS 0.85 0.822 0.70 0.700 0.721 0.700 0,670 0.650 0.625 0.001 0.577 0.555 0.534 0.513 0.494 0475 0.456 0.375 0.30 0.943 0.890 0.840 0.792 0.747 0705 0665 0627 0.592 0.550 0.527 0497 0.460 0442 0417 0354 0.709 0.766 0.744 0.222 0.701 0.681 0.661 0642 0623 0.005 0582 0570 0554 0.05 0873 0.816 0.763 0.713 0666 0623 0502 0.544 0.500 9.475 0.444 0.415 0.388 0.362 0.30 0317 0295 0.272 0258 0.184 0.131 006 LEO ULO 91 0.917 0.842 0.772 0.700 0.550 0595 0547 0502 0.450 0422 0.388 0 356 0.325 0290 0.275 0.252 0.231 0.212 0.194 0.17 0.116 0.075 0.032 0.013 10 0909 0.526 0.751 0.683 0.62 0.564 0513 0.467 0.424 0.38 0.350 0319 0.200 0.263 0.239 0218 0.198 0,180 0.164 0 140 0.092 0.057 0.022 0.000 14 0.893 0.797 0712 0636 0.567 0507 0.492 0.404 0.35 0.222 0287 0.257 0229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.059 0033 0011 15 16 17 IZED OSED 0.743 0.728 0714 0,700 0.680 0613 0.610 0552 0.453 0.372 18 19 20 25 30 40 50 0.286 0.250 0232 0.200 0388 0170 0.153 0.138 0.124 0.074 0044 0015 0.005 0 140 0315 0.292 0.270 0 250 0.232 0215 0.146 0.099 0372 0478 0.412 0.307 0.228 0.295 0.231 0.142 0.097 0331 0312 0.233 0.174 0.097 0.054 0.200 0.046 0021 0 141 0.034 0.003