Question
In: Finance
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $300,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
| Earnings before Depreciation | |||||
| Year 1 | $ | 110,000 | |||
| Year 2 | 120,000 | ||||
| Year 3 | 75,000 | ||||
| Year 4 | 50,000 | ||||
| Year 5 | 56,000 | ||||
| Year 6 | 33,000 | ||||
The firm is in a 25 percent tax bracket and has a 13 percent cost
of capital.
a. Calculate the net present value. (A
negative amount should be indicated by a minus sign. Do not round
intermediate calculations and round your answer to the nearest
whole dollar amount.)
b. Under the net present value method, should
Oregon Forest Products purchase the equipment asset?
-
Yes
-
No
Solutions
Expert Solution
a]
Operating cash flow (OCF) each year = income after tax + depreciation
income after tax = earnings after depreciation - tax
NPV is -$5,727
b]
No
It should not purchase the equipment as the NPV is negative
jeff jeffy answered 2 years agoRelated Solutions
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $300,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
Earnings before Depreciation
Year 1
$
82,000
Year 2
110,000
Year 3
80,000
Year 4
51,000
Year 5
45,000
Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $330,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator methods.
Earnings before Depreciation Year 1 $ 111,000 Year 2 130,000 Year 3
95,000 Year 4 57,000 Year 5 48,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $220,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
Earnings before Depreciation
Year 1
$
76,000
Year 2
73,000
Year 3
56,000
Year 4
38,000
Year 5
27,000
Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $420,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
Earnings before Depreciation
Year 1
$
135,000
Year 2
182,000
Year 3
125,000
Year 4
68,000
Year 5
69,000
Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $360,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator methods.
Earnings before Depreciation Year 1 $ 115,000 Year 2 162,000 Year 3
110,000 Year 4 59,000 Year 5 59,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $300,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator methods.
Earnings before Depreciation Year 1 $ 110,000 Year 2 120,000 Year 3
75,000 Year 4 50,000 Year 5 56,000 Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $500,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator
methods.
Earnings before Depreciation
Year 1
$
150,000
Year 2
200,000
Year 3
110,000
Year 4
92,000
Year 5
82,000
Year...
Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost...
Oregon Forest Products will acquire new equipment that falls
under the five-year MACRS category. The cost is $300,000. If the
equipment is purchased, the following earnings before depreciation
and taxes will be generated for the next six years. Use Table
12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator methods.
Earnings before Depreciation Year 1 $ 80,000 Year 2 98,000 Year 3
70,000 Year 4 45,000 Year 5 36,000 Year...
1. Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The...
1. Oregon Forest Products will acquire new equipment
that falls under the five-year MACRS category. The cost is
$300,000. If the equipment is purchased, the following earnings
before depreciation and taxes will be generated for the next six
years. Use Table 12-12. Use Appendix B for an approximate answer
but calculate your final answer using the formula and financial
calculator methods.
Earnings before Depreciation
Year 1
$
82,000
Year 2
110,000
Year 3
80,000
Year 4
51,000
Year 5
45,000...
The company is evaluating new equipment that will cost $2,000,000. The equipment is in the MACRS...
The company is evaluating new equipment that will cost
$2,000,000. The equipment is in the MACRS 3-year class and will be
sold after 3 years for $150,000. Use of the equipment will increase
net working capital by 200,000. The equipment
will save $850,000 in operating costs each year
for 3 years. The company's tax rate is 25 percent
and its cost of capital is 12%. Please show formulas in
Excel.
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