The Summitt Petroleum Corporation will purchase an asset that qualifies for thre

Question

The Summitt Petroleum Corporation will purchase an asset that qualifies for three-year MACRS depreciation. The cost is $340,000 and the asset will provide the following stream of earnings before depreciation and taxes for the next four years: Use Table 12-9.

Calculate the net present value. (Round "PV Factor" to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

Explanation / Answer

Calculation of Net present value Year Cash flow PV factor @ 9% Present salve 0 -340000 1                          -3,40,000.00 1 143627 0.917                           1,31,767.89 2 188805 0.842                           1,58,913.39 3 66362 0.772                               51,243.64 4 53006 0.708                               37,550.79 Net Present Value                                     39,476 Working Calculation of operating cash income Year Profit before deprecaition & taxes MACRS Depreciation Profit before taxes Tax @ 35% Profit After tax Operating cash Income A B C = A-B D E = C-D E + B 1 160000 113220 46780 16373 30407 143627 2 209000 151300 57700 20195 37505 188805 3 75000 50320 24680 8638 16042 66362 4 68000 25160 42840 14994 27846 53006

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