Considering the purchase of manufacturing equipment

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Reference no: EM131528974

Universal Electronics is considering the purchase of manufacturing equipment with a 10-year midpoint in its asset depreciation range (ADR). Carefully refer to Table 12–8 to determine in what depreciation category the asset falls (Hint: It is not 10 years.), and to Table 12-9 to determine the percent depreciation rate for each year. The asset will cost $140,000 and it will produce earnings before depreciation and taxes of $45,000 per year for three years, and then $23,000 a year for seven more years. The firm has a tax rate of 30 percent and a cost of capital of 14 percent. In doing your analysis, if you have years in which there is no depreciation, merely enter a zero for depreciation. Use Appendix B.

(a) Calculate the net present value. (Round "Percentage depreciation" and "PV Factor" to 3 decimal places. Round all dollar values to the nearest whole number. Omit the "$" sign in your response.)

Net present value $

(b) Based on the net present value, should the Universal Electronics purchase the asset?

Yes

Reference no: EM131528974

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