Provide the following stream of earnings before depreciation

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Reference no: EM131907255

1. The Summit Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation.

The cost is $250,000 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	$	122,000
Year 2		155,000
Year 3		58,000
Year 4		56,000

The firm is in a 30 percent tax bracket and has a cost of capital of 16 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. (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:

2. Assume $79,000 is going to be invested in each of the following assets. Using Table 12-11 and Table 12-12, indicate the dollar amount of the first year's depreciation.

		First Year's Depreciation
a.	Office furniture
b.	Automobile
c.	Electric and gas utility property
d.	Sewage treatment plant

Reference no: EM131907255

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