Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12 Year 1 Year 2 Year 3 Year 4 $ 206,000 254,000 86,000 78,000 The firm is in a 40 percent tax bracket and has a cost of capital of 12 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. Note: 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 es b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? Yes O No
Problem 12-25 (Algo) MACRS depreciation and net present value [LO12-4] The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $390,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12 Year 1 Year 2 Year 3 Year 4 $ 206,000 254,000 86,000 78,000 The firm is in a 40 percent tax bracket and has a cost of capital of 12 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. Note: 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 es b. Under the net present value method, should Summit Petroleum Corporation purchase the asset? Yes O No
Chapter7: Deductions And Losses: Certain Business Expenses And Losses
Section: Chapter Questions
Problem 28CE
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