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 $$225,000,$ and it will produce earnings before depreciation and taxes of $$74,000$ per year for three years, and then $$36,000$ a year for seven more years. The firm has a tax rate of $25$ percent. Assume the cost of capital is $14$ 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.

Calculate the net present value.

Note: Do not round intermediate calculations and round your answer to $2$ decimal places.

Table $12-12$ Depreciation percentages $($expressed in decimals$)$

Depreciation Year $3-$Year MACRS $5-$Year MACRS $7-$Year MACRS $10-$Year MACRS $15-$Year MACRS $20-$Year MACRS

$10\mathrm{.}3330\mathrm{.}2000\mathrm{.}1430\mathrm{.}1000\mathrm{.}0500\mathrm{.}038$

$20\mathrm{.}4450\mathrm{.}3200\mathrm{.}2450\mathrm{.}1800\mathrm{.}0950\mathrm{.}072$

$30\mathrm{.}1480\mathrm{.}1920\mathrm{.}1750\mathrm{.}1440\mathrm{.}0860\mathrm{.}067$

$40\mathrm{.}0740\mathrm{.}1150\mathrm{.}1250\mathrm{.}1150\mathrm{.}0770\mathrm{.}062$

$50\mathrm{.}1150\mathrm{.}0890\mathrm{.}0920\mathrm{.}0690\mathrm{.}057$

$60\mathrm{.}0580\mathrm{.}0890\mathrm{.}0740\mathrm{.}0620\mathrm{.}053$

$70\mathrm{.}0890\mathrm{.}0660\mathrm{.}0590\mathrm{.}045$

$80\mathrm{.}0450\mathrm{.}0660\mathrm{.}0590\mathrm{.}045$

$90\mathrm{.}0650\mathrm{.}0590\mathrm{.}045$

$100\mathrm{.}0650\mathrm{.}0590\mathrm{.}045$

$110\mathrm{.}0330\mathrm{.}0590\mathrm{.}045$

$120\mathrm{.}0590\mathrm{.}045$

$130\mathrm{.}0590\mathrm{.}045$

$140\mathrm{.}0590\mathrm{.}045$

$150\mathrm{.}0590\mathrm{.}045$

$160\mathrm{.}0300\mathrm{.}045$

$170\mathrm{.}045$

$180\mathrm{.}045$

$190\mathrm{.}045$

$200\mathrm{.}045$

$210\mathrm{.}017$

$1\mathrm{.}0001\mathrm{.}0001\mathrm{.}0001\mathrm{.}0001\mathrm{.}0001\mathrm{.}000$

Table $12-11$ Categories for depreciation write$-$off

Class

$3-$year MACRS All property with ADR midpoints of $4$ 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 technological 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 category include electric and gas utility property and sewer pipes.

$27\mathrm{.}5-$year MACRS Residential rental property if $80$ percent or more of the gross rental income is from nontransient dwelling units $($e$.$g$.,$ an apartment building$)$; low$-$income housing.

$31\mathrm{.}5-$year MACRS Nonresidential real property that has no ADR class life or whose class life is $27\mathrm{.}5$ years or more.

$39-$year MACRS Nonresidential real property placed in service after May $12,1993.$

Appendix B

Present value of $$1,$ PVIF

PV $=$ FV$[1/(1+$ i$)$n$]$

Period Percent

$1\%2\%3\%4\%5\%6\%7\%8\%9\%10\%11\%12\%13\%14\%15\%16\%17\%18\%19\%20\%25\%30\%35\%40\%50\%$

$10\mathrm{.}9900\mathrm{.}9800\mathrm{.}9710\mathrm{.}9620\mathrm{.}9520\mathrm{.}9430\mathrm{.}9350\mathrm{.}9260\mathrm{.}9170\mathrm{.}9090\mathrm{.}9010\mathrm{.}8930\mathrm{.}8850\mathrm{.}8770\mathrm{.}8700\mathrm{.}8620\mathrm{.}8550\mathrm{.}8470\mathrm{.}8400\mathrm{.}8330\mathrm{.}8000\mathrm{.}7690\mathrm{.}7410\mathrm{.}7140\mathrm{.}667$

$20\mathrm{.}9800\mathrm{.}9610\mathrm{.}9430\mathrm{.}9250\mathrm{.}9070\mathrm{.}8900\mathrm{.}8730\mathrm{.}8570\mathrm{.}8420\mathrm{.}8260\mathrm{.}8120\mathrm{.}7970\mathrm{.}7830\mathrm{.}7690\mathrm{.}7560\mathrm{.}7430\mathrm{.}7310\mathrm{.}7180\mathrm{.}7060\mathrm{.}6940\mathrm{.}6400\mathrm{.}5920\mathrm{.}5490\mathrm{.}5100\mathrm{.}444$

$30\mathrm{.}9710\mathrm{.}9420\mathrm{.}9150\mathrm{.}8890\mathrm{.}8640\mathrm{.}8400\mathrm{.}8160\mathrm{.}7940\mathrm{.}7720\mathrm{.}7510\mathrm{.}7310\mathrm{.}7120\mathrm{.}6930\mathrm{.}6750\mathrm{.}6580\mathrm{.}6410\mathrm{.}6240\mathrm{.}6090\mathrm{.}5930\mathrm{.}5790\mathrm{.}5120\mathrm{.}4550\mathrm{.}4060\mathrm{.}3640\mathrm{.}296$

$40\mathrm{.}9610\mathrm{.}9240\mathrm{.}8880\mathrm{.}8550\mathrm{.}8230\mathrm{.}7920\mathrm{.}7630\mathrm{.}7350\mathrm{.}7080\mathrm{.}6830\mathrm{.}6590\mathrm{.}6360\mathrm{.}6130\mathrm{.}5920\mathrm{.}5720\mathrm{.}5520\mathrm{.}5340\mathrm{.}5150\mathrm{.}4990\mathrm{.}4820\mathrm{.}4100\mathrm{.}3500\mathrm{.}3010\mathrm{.}2600\mathrm{.}198$