The annual depreciation schedule. Introduction: MACRS depreciation method: MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods. Depreciation schedule: A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

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Answer 1

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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DataPoint Engineering is considering the purchase of a new piece of equipment for $200,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $100,000 in nondepreciable working capital. $25,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. I can only attach 2 images, please see previously asked question for other images or please let me know how I can ask with 3 images. Year Amount 1 $ 173,000 2 152,000 3 108,000 4 103,000 5 89,000 6 71,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost(aftertax) Weights Debt Kd…

DataPoint Engineering is considering the purchase of a new piece of equipment for $200,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $100,000 in nondepreciable working capital. $25,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Need help with subpart D-1, previously asked question and was a-c were answered. Year Amount 1 $ 173,000 2 152,000 3 108,000 4 103,000 5 89,000 6 71,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost(aftertax) Weights Debt Kd 5.50 % 30 % Preferred stock Kp 9.20 10…

DataPoint Engineering is considering the purchase of a new piece of equipment for $260,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $160,000 in nondepreciable working capital. $40,000 of this investment will be recovered after the sixth year and will provide additional cash flow for that year. Income before depreciation and taxes for the next six are shown in the following table. Use Table 12–11, Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 123456 4 6 Amount $ 191,000 164,000 134,000 119,000 97,000 87,000 The tax rate is 25 percent. The cost of capital must be computed based on the following: Cost (aftertax) 5.80% Debt Preferred stock Common equity (retained earnings) Kd Кр Ke 11.60 16.00 Weights 30% 10 60

Answer 2

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Answer 3

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Answer 4

Question

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

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Answer 5

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 6

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

Answer 7

Chapter 12, Problem 32P

a.

Summary Introduction

To prepare: The annual depreciation schedule.

Introduction:

MACRS depreciation method:

MACRS stands for modified accelerated cost recovery system, which is a tool of depreciation used in the U.S. for tax purposes. This system places all the assets into categories with pre-specified depreciation periods.

Depreciation schedule:

A table that shows the amount of depreciation of a particular asset over the years of its usage is termed as depreciation schedule.

Answer 8

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

Answer 9

b.

Summary Introduction

To calculate: The annual cash flow including the working capital recovered in 6th year.

Introduction:

Cash flow:

The amount of cash and its equivalents that are transferred into and out of a business is termed as cash flows.

Working capital:

A measurement that helps a company to find its liquidity is termed as working capital. It is the difference between the current assets and current liabilities of a company.

Answer 10

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

Answer 11

c.

Summary Introduction

To calculate: The weighted average cost of the capital.

Introduction:

Weighted average cost of capital (WACC):

It is defined as the rate at which a company needs to pay on average to all its shareholders in return for financing its assets. This WACC is primarily referred to as the cost of capital of the firm.

Answer 12

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 13

d.

Summary Introduction

To calculate: The NPV of the investment and whether the purchase of the new equipment by the Data-Point Engineering should be made or not.

Introduction:

Net present value (NPV):

It is the difference between the PV (present value) of cash inflows and the PV of cash outflows. It is used in capital budgeting and planning of investment to assess the benefits and losses of any project or investment.

Answer 14

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Answer 17

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Solution Summary: The author explains the MACRS depreciation method and the formula used for the calculation of the WACC.

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