of a new grading machine replace the existing one. ing mac was purchased installe Cost 1S20, 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 ma costs $35,000 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 $24,500 without incurring any removal or cleanup co 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 SO (Round to the nearest dollar.) O Data Table - X (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 20% 7 years 14% 10 years 10% 3 years Recovery year 1 33% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 9% 8% 7% 12% 9% 6 5% 9% 7 9%
of a new grading machine replace the existing one. ing mac was purchased installe Cost 1S20, 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 ma costs $35,000 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 $24,500 without incurring any removal or cleanup co 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 SO (Round to the nearest dollar.) O Data Table - X (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 20% 7 years 14% 10 years 10% 3 years Recovery year 1 33% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 9% 8% 7% 12% 9% 6 5% 9% 7 9%
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:**Initial Investment—Basic Calculation**
Cushing Corporation is evaluating the purchase of a new grading machine to replace an existing one. The existing machine was acquired 4 years ago for $20,100 and is being depreciated over a 5-year recovery period using MACRS (Modified Accelerated Cost Recovery System). According to the table provided for applicable depreciation percentages, the new machine costs $35,000 and has an additional $5,500 in installation costs. It will also be depreciated over a 5-year MACRS recovery period. The existing machine can be sold for $24,500 without any removal or cleanup costs. The firm is subject to a 40% tax rate.
Calculate the initial investment needed for the new grading machine purchase.
**Input: The initial investment will be $________.**
*(Please round to the nearest dollar.)*
**Data Table Explanation:**
The table presents the "Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes." It shows the percentages applicable for different recovery years (columns for 3 years, 5 years, 7 years, and 10 years).
- **Recovery Year 1**:
- 3 years: 33%
- 5 years: 20%
- 7 years: 14%
- 10 years: 10%
- **Recovery Year 2**:
- 3 years: 45%
- 5 years: 32%
- 7 years: 25%
- 10 years: 18%
- **Recovery Year 3**:
- 3 years: 15%
- 5 years: 19%
- 7 years: 18%
- 10 years: 14%
- **Recovery Year 4**:
- 3 years: 7%
- 5 years: 12%
- 7 years: 12%
- 10 years: 12%
- **Recovery Year 5**:
- 5 years: 12%
- 7 years: 9%
- 10 years: 9%
- **Recovery Year 6** (and beyond for 7 and 10-year schedules):
- 7 years: 9%, and continues decreasing in subsequent years.
- 10 years: continues decreasing to 4% by Year 11.
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