Calculating initial cash flow Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $331,000. The system can be sold today for $191,000. It is being depreciated using MACRS and a 5-year recovery period (see the table). A new computer system will cost $498,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% 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 $191,000. c. Calculate the initial cash flow associated with the replacement project. a. The remaining book value is $ (Round to the nearest dollar.)
Calculating initial cash flow Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $331,000. The system can be sold today for $191,000. It is being depreciated using MACRS and a 5-year recovery period (see the table). A new computer system will cost $498,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% 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 $191,000. c. Calculate the initial cash flow associated with the replacement project. a. The remaining book value is $ (Round to the nearest dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Calculating initial cash flow Vastine Medical, Inc., is considering
replacing its existing computer system, which was purchased 2 years ago
at a cost of $331,000. The system can be sold today for $191,000. It is
being depreciated using MACRS and a 5-year recovery period (see the
table). A new computer system will cost $498,000 to purchase and
install. Replacement of the computer system would not involve any change
in net working capital. Assume a 21% 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 $191,000.
c. Calculate the initial cash flow associated with the replacement project.
a. The remaining book value is $
(Round to the nearest dollar.)
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