Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $19,000; it was being depreciated under MACRS using a 5-year recovery period (See the table below for percentages). The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $34,300 and requires $5,400 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,600 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. Total cost of the new machine: $? Book Value of old asset: $? Tax on the sale of old asset: $?
Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $19,000; it was being depreciated under MACRS using a 5-year recovery period (See the table below for percentages). The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $34,300 and requires $5,400 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $24,600 without incurring any removal or cleanup costs. The firm is subject to a 21% tax rate. Calculate the initial cash flow associated with the proposed purchase of a new grading machine. Total cost of the new machine: $? Book Value of old asset: $? Tax on the sale of old asset: $?
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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Transcribed Image Text:Cushing Corporation is considering the purchase
of a new grading machine to replace the existing
one. The existing machine was purchased 4 years
ago at an installed cost of $19,000; it was being
depreciated under MACRS using a 5-year
recovery period (See the table below for
percentages). The existing machine is expected to
have a usable life of at least 5 more years. The
new machine costs $34,300 and requires $5,400
in installation costs; it will be depreciated using a
5-year recovery period under MACRS. The
existing machine can currently be sold for
$24,600 without incurring any removal or cleanup
costs. The firm is subject to a 21% tax rate.
Calculate the initial cash flow associated with the
proposed purchase of a new grading machine.
Total cost of the new machine: $ ?
Book Value of old asset: $?
Tax on the sale of old asset: $?
After tax proceeds from the old asset: $ ?
Initial Investment: $ ?
MACRS
Recovery Year 5 Years
20%
32%
19%
12%
12%
5%
1
2
3
4
5
6
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