1. The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation.
The cost is $250,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
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|
|
|
| Year 1 |
$ |
122,000 |
|
| Year 2 |
|
155,000 |
|
| Year 3 |
|
58,000 |
|
| Year 4 |
|
56,000 |
|
|
The firm is in a 30 percent tax bracket and has a cost of capital of 16 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.)
Net present value:
2. Assume $79,000 is going to be invested in each of the following assets. Using Table 12-11 and Table 12-12, indicate the dollar amount of the first year's depreciation.
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First Year's Depreciation |
| a. |
Office furniture |
|
| b. |
Automobile |
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| c. |
Electric and gas utility property |
|
| d. |
Sewage treatment plant |
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