Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 3 years ago at a cost of $321,000. The system can be sold today for $205,000. It is being depreciated using MACRS and a 5-year recovery period (see the table E). A new computer system will cost $510,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $205,000. c. Calculate the initial investment associated with the replacement project. a. The remaining book value is $ (Round to the nearest dollar.)
Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 3 years ago at a cost of $321,000. The system can be sold today for $205,000. It is being depreciated using MACRS and a 5-year recovery period (see the table E). A new computer system will cost $510,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $205,000. c. Calculate the initial investment associated with the replacement project. a. The remaining book value is $ (Round to the nearest dollar.)
Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
10th Edition
ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter12: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 11P: REPLACEMENT ANALYSIS St. Johns River Shipyards is considering the replacement of an 8-year-old...
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