Question
In: Finance
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost...
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $180,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
| Year 1 | $ | 96,000 | |
| Year 2 | 110,000 | ||
| Year 3 | 48,000 | ||
| Year 4 | 46,000 | ||
The firm is in a 35 percent tax bracket and has a cost of capital
of 12 percent. 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.
(Negative amount should be indicated by a minus sign. Do
not round intermediate calculations and round your answer to 2
decimal places.)
What is the net present value?
3 year MACRS 0.333, 0.445, 0.148 and 0.074
Solutions
Expert Solution
NPV= 24603.19
| Year | Initial cash flow | OCF |
| 0 | -180000 | |
| 1 | $83,379.00 | |
| 2 | $99,535.00 | |
| 3 | $40,524.00 | |
| 4 | $34,562.00 | |
| NPV | $24,603.19 |
OCF calculated as
| OCF | ||||||
| Year | Cash flows | Depreciation | EBIT | Tax | PAT | OCF |
| 1 | 96000 | -59940 | 36060 | -12621 | 23439 | 83379 |
| 2 | 110000 | -80100 | 29900 | -10465 | 19435 | 99535 |
| 3 | 48000 | -26640 | 21360 | -7476 | 13884 | 40524 |
| 4 | 46000 | -13320 | 32680 | -11438 | 21242 | 34562 |
jeff jeffy answered 2 years agoRelated Solutions
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Year
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Property Class
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Required:
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Multiple Choice
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$2,749,762
$2,487,879
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