nitial investment at various sale prices Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. (See table Data table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. for the applicable depreciation percentages.) The new machine costs $23,500 and requires $2,100 in installation costs. The firm is subject to a 40% tax rate. In each of the following cases, calculate the initial investment for the replacement. a. EMC sells the old machine for $11,300. b. EMC sells the old machine for $6,920. c. EMC sells the old machine for $2,900. d. EMC sells the old machine for $1,440. Question content area bottom Part 1 Calculate the initial investment at various sale prices below. a. EMC sells the old machine for $11,300. (Round to the nearest dollar.) (a) Cost of new asset $ 23,500 Installation cost 2,100 Total installed cost $ 25,600 Proceeds from sale of old asset $ (11,300) Tax on sale of old asset $ 3,360 Total after-tax proceeds $ (7,940) Initial investment $ 17,660 Part 2 b. EMC sells the old machine for $6,920. (Round to the nearest dollar.) (b) Cost of new asset $ 23,500 Installation cost 2,100 Total installed cost $ 25,600 Proceeds from sale of old asset $ Tax on sale of old asset $ Total after-tax proceeds $ Initial investment $

nitial investment at various sale prices Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. (See table Data table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. for the applicable depreciation percentages.) The new machine costs $23,500 and requires $2,100 in installation costs. The firm is subject to a 40% tax rate. In each of the following cases, calculate the initial investment for the replacement. a. EMC sells the old machine for $11,300. b. EMC sells the old machine for $6,920. c. EMC sells the old machine for $2,900. d. EMC sells the old machine for $1,440. Question content area bottom Part 1 Calculate the initial investment at various sale prices below. a. EMC sells the old machine for $11,300. (Round to the nearest dollar.) (a) Cost of new asset $ 23,500 Installation cost 2,100 Total installed cost $ 25,600 Proceeds from sale of old asset $ (11,300) Tax on sale of old asset $ 3,360 Total after-tax proceeds $ (7,940) Initial investment $ 17,660 Part 2 b. EMC sells the old machine for $6,920. (Round to the nearest dollar.) (b) Cost of new asset $ 23,500 Installation cost 2,100 Total installed cost $ 25,600 Proceeds from sale of old asset $ Tax on sale of old asset $ Total after-tax proceeds $ Initial investment $

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 17P

See similar textbooks

Question content area bottom

Part 1

Calculate the initial investment at various sale prices below.

a. EMC sells the old machine for

$11,300.

(Round to the nearest dollar.)

	(a)
Cost of new asset	$	23,500
Installation cost		2,100
Total installed cost	$	25,600

Proceeds from sale of old asset	$	(11,300)
Tax on sale of old asset	$	3,360
Total after-tax proceeds	$	(7,940)
Initial investment	$	17,660

Part 2

b. EMC sells the old machine for

$6,920.

(Round to the nearest dollar.)

	(b)
Cost of new asset	$	23,500
Installation cost		2,100
Total installed cost	$	25,600

Proceeds from sale of old asset	$
Tax on sale of old asset	$
Total after-tax proceeds	$
Initial investment	$

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Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes
	Percentage by recovery year*
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				6%
11				4%
Totals	100%	100%	100%	100%
*These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.