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 2 3 4 5 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 Kp Ke 11.60 16.00 Weights 30% 10 60

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 2 3 4 5 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 Kp Ke 11.60 16.00 Weights 30% 10 60

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 11PA: Gallant Sports s considering the purchase of a new rock-climbing facility. The company estimates...

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