DataPoint Engineering is considering the purchase of a new piece of equipment fo
ID: 2634924 • Letter: D
Question
DataPoint Engineering is considering the purchase of a new piece of equipment for $270,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $170,000 in nondepreciable working capital. Forty-two thousand dollars 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
DataPoint Engineering is considering the purchase of a new piece of equipment for $270,000. It has an eight-year midpoint of its asset depreciation range (ADR). It will require an additional initial investment of $170,000 in nondepreciable working capital. Forty-two thousand dollars 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
Explanation / Answer
Depreciation Base Percentage Depreciation Annual Depreciation $270,000 0.2 $54,000 270,000 0.32 $86,400 270,000 0.192 $51,840 270,000 0.115 $31,050 270,000 0.115 $31,050 270,000 0.058 $15,660 $270,000 b. Annual Cash Flow 1 2 3 4 5 6 EBDT $194,000 $166,000 $136,000 $121,000 $98,000 $88,000
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