Case Study # 4 Excel Submission – Capital Budgeting Comprehensive Problem Pinnacle Custom Home Builders purchased a 40 foot articulating boom lift three years ago for $50,000. The equipment has been depreciated under the 5-year MACRS schedule (20%, 32%, 19%, 12%, 12% & 5%). The old equipment can be sold for $33,000. Pinnacle is considering the purchase of a new 60 foot articulating boom lift that would allow the to complete nearly all of its construction projects without the need for costly rental company lifts. The new lift could be purchased for $105,000 and would also fall under the 5-year MACRS depreciation schedule. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years. New Equipment Old Equipment $40,000 38,000 35,000 30,000 25,000 22,500 $25,000 16,000 9,000 8,000 6,000 5,000 2. 4. 5. 6.. The firm has a 28 percent tax rate and a 7 percent cost of capital. Should the new equipment be purchased to replace the old equipment? Briefly justify your answer. 123 456

Case Study # 4 Excel Submission – Capital Budgeting Comprehensive Problem Pinnacle Custom Home Builders purchased a 40 foot articulating boom lift three years ago for $50,000. The equipment has been depreciated under the 5-year MACRS schedule (20%, 32%, 19%, 12%, 12% & 5%). The old equipment can be sold for $33,000. Pinnacle is considering the purchase of a new 60 foot articulating boom lift that would allow the to complete nearly all of its construction projects without the need for costly rental company lifts. The new lift could be purchased for $105,000 and would also fall under the 5-year MACRS depreciation schedule. Assume the old and new equipment would provide the following operating gains (or losses) over the next six years. New Equipment Old Equipment $40,000 38,000 35,000 30,000 25,000 22,500 $25,000 16,000 9,000 8,000 6,000 5,000 2. 4. 5. 6.. The firm has a 28 percent tax rate and a 7 percent cost of capital. Should the new equipment be purchased to replace the old equipment? Briefly justify your answer. 123 456

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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