Oregon Forest Products will acquire new equipment that falls under the five-year MACRS category. The cost is $240,000. If the equipment is purchased, the following earnings before depreciation and taxes will be generated for the next six years.
Year 1 $ 77,000
Year 2 78,000
Year 3 57,000
Year 4 39,000
Year 5 29,000
Year 6 23,000
The firm is in a 35 percent tax bracket and has a 12 percent cost of capital.
A) Calculate the net present value.
B) Under the net present value method, should Oregon Forest Products purchase the equipment asset? (YES or NO).