Initial investment-Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,500; it was being depreciated under MACRS using a 5-year recovery period. (See table E for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $34,700 and requires $4,800 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 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine. The initial investment will be $ (Round to the nearest dollar.)
Initial investment-Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,500; it was being depreciated under MACRS using a 5-year recovery period. (See table E for the applicable depreciation percentages.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $34,700 and requires $4,800 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 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine. The initial investment will be $ (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
Problem 1PS
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Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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Transcribed Image Text:Initial investment-Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace
the existing one. The existing machine was purchased 3 years ago at an installed cost of $19,500; it was being depreciated
under MACRS using a 5-year recovery period. (See table E for the applicable depreciation percentages.) The existing
machine is expected to have a usable life of at least 5 more years. The new machine costs $34,700 and requires $4,800 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 40% tax rate. Calculate the initial
investment associated with the proposed purchase of a new grading machine.
The initial investment will be $. (Round to the nearest dollar.)
Data Table
(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a
spreadsheet.)
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
Percentage by recovery year*
5 years
3 years
33%
Recovery year
7 years
14%
10 years
1
20%
10%
45%
32%
25%
18%
15%
19%
18%
14%
4
7%
12%
12%
12%
5
12%
9%
9%
5%
9%
8%
7
9%
7%
8
4%
6%
6%
10
6%
11
4%
Totals
100%
100%
100%
100%
*These percentages have been rounded to the nearest whole percent to simplify calculations while
retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual
unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year
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