Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 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 Year 2 Year 3 Year 4 $ 206,000 254,000 86,000 78,000 The firm is in a 40 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. Note: Negative amount should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places. Net present value es b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? Yes O No
Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 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 Year 2 Year 3 Year 4 $ 206,000 254,000 86,000 78,000 The firm is in a 40 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. Note: Negative amount should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places. Net present value es b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? Yes O No
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4]
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 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
Year 2
Year 3
Year 4
$ 206,000
254,000
86,000
78,000
The firm is in a 40 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.
Note: Negative amount should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to
2 decimal places.
Net present value
es
b. Under the net present value method, should Summit Petroleum Corporation purchase the asset?
Yes
O No](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6391577a-6a52-4787-b085-3a4b964933b4%2F00553374-1920-4d68-a231-f6297f4bb834%2F5bjhx2s_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4]
The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 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
Year 2
Year 3
Year 4
$ 206,000
254,000
86,000
78,000
The firm is in a 40 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.
Note: Negative amount should be Indicated by a minus sign. Do not round Intermediate calculations and round your answer to
2 decimal places.
Net present value
es
b. Under the net present value method, should Summit Petroleum Corporation purchase the asset?
Yes
O No
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