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 $20,600; it was being depreciated under MACRS using 5-year recovery period. 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% The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $36,000 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,300 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.
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 $20,600; it was being depreciated under MACRS using 5-year recovery period. 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% The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $36,000 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,300 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.
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
Related questions
Question
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 $20,600; it was being
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|
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%
|
The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $36,000 and requires $5,500 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $25,300 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.
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