Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will cost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 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 yo have years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. 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: Do not round intermediate calculations and round your answer to 2 decimal places. Net present value b. Based on the net present value, should Universal Electronics purchase the asset?
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will cost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 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 yo have years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. 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: Do not round intermediate calculations and round your answer to 2 decimal places. Net present value b. Based on the net present value, should Universal Electronics purchase the asset?
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 12-27 (Algo) MACRS depreciation and net present value [LO12-4]
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range
(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will
cost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 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 12-12. 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: Do not round intermediate calculations and round your answer to 2 decimal places.
Net present value
b. Based on the net present value, should Universal Electronics purchase the asset?
● Yes
O No](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbc1217aa-b394-4d4f-8879-6f48ff55aeb7%2Fe81be093-3a72-496a-96e8-28067f5fe7c3%2Fqh1srpp_processed.png&w=3840&q=75)
Transcribed Image Text:es
Problem 12-27 (Algo) MACRS depreciation and net present value [LO12-4]
Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range
(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset will
cost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 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 12-12. 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: Do not round intermediate calculations and round your answer to 2 decimal places.
Net present value
b. Based on the net present value, should Universal Electronics purchase the asset?
● Yes
O No
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