## (Solved) 12-7 Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is \$260,000.

12-7

Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is \$260,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years. UseÂ Table 12-12. UseÂ Appendix BÂ for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Â Â Earnings before DepreciationÂ Year 1Â \$78,000Â Â Year 2Â Â 86,000Â Â Year 3Â Â 60,000Â Â Year 4Â Â 40,000Â Â Year 5Â Â 33,000Â Â Year 6Â Â 24,000Â Â Â

The firm is in a 40 percent tax bracket and has a 8 percent cost of capital.

a.Â Calculate the net present value.

Net present value=

12-8

The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be \$280,000. Of this amount, \$200,000 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 \$80,000. The depreciated assets will have zero resale value. UseÂ Table 12-12. UseÂ Appendix BÂ for an approximate answer but calculate your final answer using the formula and financial calculator methods.

The contract will require an additional investment of \$55,000 in working capital at the beginning of the first year and, of this amount, \$35,000 will be returned to the Spartan Technology Company after six years.

The investment will produce \$80,000 in income before depreciation and taxes for each of the six years. The corporation is in a 30 percent tax bracket and has a 6 percent cost of capital.

a.Â Calculate the net present value

Net Present Value=

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