Please show formulas P1111 Calculating initial investmentVastine Medical, Inc., is considering...
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P1111 Calculating initial investmentVastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2, page 120.) A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.
Calculate the book value of the existing computer system.
Calculate the after-tax proceeds of its sale for $200,000.
Calculate the initial investment associated with the replacement project.
PROBLEM 11-11
a.
Book Value =
b.
After-tax proceeds:
Sales price of old equipment
Book value of old equipment
Recapture of depreciation
Taxes on recapture of depreciation
After-tax proceeds
c.
Initial investment:
Cost of new machine
Less: Sales price of old machine
Plus: Tax on recapture of depreciation
Initial investment
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