esProblem 12-27 (Algo) MACRS depreciation and net present value [LO12-4]Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range(ADR). Carefully refer to Table 12-11 to determine in what depreciation category the asset falls. (Hint: It is not 10 years.) The asset willcost $220,000, and it will produce earnings before depreciation and taxes of $72,000 per year for three years, and then $35,000 ayear for seven more years. The firm has a tax rate of 25 percent. Assume the cost of capital is 14 percent. In doing your analysis, if youhave years in which there is no depreciation, merely enter a zero for depreciation. Use Table 12-12. Use Appendix B for anapproximate answer but calculate your final answer using the formula and financial calculator methods.a. Calculate the net present value.Note: Do not round intermediate calculations and round your answer to 2 decimal places.Net present valueb. Based on the net present value, should Universal Electronics purchase the asset?● YesO No

Net Present Value (NPV) is a financial metric used to evaluate the profitability of an investment or…

Answered: Universal Electronics is considering…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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