PLEASE SHOW EXACTLY HOW YOU GOT THE NET PRESENT VALUE!! I came up with Present V
ID: 2736891 • Letter: P
Question
PLEASE SHOW EXACTLY HOW YOU GOT THE NET PRESENT VALUE!! I came up with Present ValueTotal $388,266.08 for a Net Present Value of -11,733.92 (400,000- 388,266.08) but it is wrong some how. PLEASE HELP!
The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $400,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
PLEASE SHOW EXACTLY HOW YOU COMEUP WITH YOUR ANSWERS and SEE THE REST OF THE QUESTION BELOW WITH THE TAX and RATE..thanks
The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $400,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-12.
Explanation / Answer
Calculation of Depreciation for year 1 to year 4 (Three year MACRS Depreciation Method)
Calculation of Operating Cash flow
Earnings before depreciation & tax
(-) Depreciation
180000
133320
236000
177800
82000
59240
74000
29640
Earnings before tax
(-) Tax @ 30 %
46680
14004
58200
17460
22760
6828
44360
13308
Earnings after tax
(+) Depreciation
32676
133320
40740
177800
15932
59240
31052
29640
P.V. of Cash inflow = 165996 * P.V,factor for first year @ 12 % + 218540 * P.V,factor for second year @ 12 % + 75172 * P.V,factor for third year @ 12 % + 60692 * P.V,factor for fourth year @ 12 %
P.V. of Cash inflow = 165996 * 0.893 + 218540 * 0.797 + 75172 * 0.712 + 60692 * 0.636
P.V. of Cash inflow = $ 414533.38
Net Present value = P.V. of Cash inflow - P.V. of cash outflow
= 414533.38 - 400000
= $ 14533.38 (approx)
Conclusion:- Net Present value (NPV)= $ 14533.38 (approx)
Year Depreciation rate Depreciation Expense = (400000 * Depreciation rate) 1 33.33 % 133320 2 44.45 % 177800 3 14.81 % 59240 4 7.41 % 29640Related Questions
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