The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The Initial Investment in land and equipment will be $300,000. Of this amount, $240,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The contract will require an additional Investment of $57,000 in working capital at the beginning of the first year and, of this amount, $37,000 will be returned to the Spartan Technology Company after six years. The Investment will produce $85,000 in Income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Net present value $ 114,852.63 b. Should the Investment be undertaken? • Yes O NO.
The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The Initial Investment in land and equipment will be $300,000. Of this amount, $240,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. The contract will require an additional Investment of $57,000 in working capital at the beginning of the first year and, of this amount, $37,000 will be returned to the Spartan Technology Company after six years. The Investment will produce $85,000 in Income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. Note: Do not round intermediate calculations and round your answer to 2 decimal places. Net present value $ 114,852.63 b. Should the Investment be undertaken? • 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
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Transcribed Image Text:The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The Initial Investment in
land and equipment will be $300,000. Of this amount, $240,000 is subject to five-year MACRS depreciation. The balance is in
nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000.
The depreciated assets will have zero resale value. Use Table 12-12. Use Appendix B for an approximate answer but calculate your
final answer using the formula and financial calculator methods.
The contract will require an additional Investment of $57,000 in working capital at the beginning of the first year and, of this amount,
$37,000 will be returned to the Spartan Technology Company after six years.
The Investment will produce $85,000 in Income before depreciation and taxes for each of the six years. The corporation is in a 25
percent tax bracket and has a 8 percent cost of capital.
a. Calculate the net present value.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Net present value
$
114,852.63
b. Should the Investment be undertaken?
• Yes
O NO.
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