Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 3 years ago at a cost of $324,000. The system can be sold today for $193,000. It is being depreciated using MACRS and a 5-year recovery period (see the table LOADING... ). 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 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 $193,000. c. Calculate the initial investment associated with the replacement project
Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 3 years ago at a cost of $324,000. The system can be sold today for $193,000. It is being depreciated using MACRS and a 5-year recovery period (see the table LOADING... ). 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 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 $193,000. c. Calculate the initial investment associated with the replacement project
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
Problem 1PS
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Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased
depreciated using MACRS and a 5-year recovery period (see the table
A new computer system will cost
capital gains.
3
years ago at a cost of
$324,000.
The system can be sold today for
$193,000.
It is being LOADING...
).$498,000
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 a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for
$193,000.
c. Calculate the initial investment associated with the replacement project.
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