omputer system will cost 1,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains. Calculate the book value of the existing computer system. Calculate the after-tax proceeds of its sale for $206,000. Calculate the initial cash flow associated with the replacement project. The remaining book value is $ (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 6 7 8 9 10 11 Totals 3 years 33% 45% 15% 7% Percentage by recovery year 5 years 7 years 20% 14% 25% 18% 12% 9% 9% 9% Print 32% 19% 12% 12% 5% 10 years 10% Done 18% 14% 12% 9% 8% 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 convention. 7% 6% 6% 6% X
omputer system will cost 1,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains. Calculate the book value of the existing computer system. Calculate the after-tax proceeds of its sale for $206,000. Calculate the initial cash flow associated with the replacement project. The remaining book value is $ (Round to the nearest dollar.) Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 6 7 8 9 10 11 Totals 3 years 33% 45% 15% 7% Percentage by recovery year 5 years 7 years 20% 14% 25% 18% 12% 9% 9% 9% Print 32% 19% 12% 12% 5% 10 years 10% Done 18% 14% 12% 9% 8% 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 convention. 7% 6% 6% 6% X
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
Transcribed Image Text:Calculating initial cash flow Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $319,000. The system can be sold today for $206,000. It is being depreciated using MACRS and a 5-year recovery period (see the table
computer system will cost $491,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate on ordinary income and capital gains.
a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for $206,000.
c. Calculate the initial cash flow associated with the replacement project.
a. The remaining book value is $
(Round to the nearest dollar.)
Data table
(Click on the icon here
in order to copy the contents of the data table below into a spreadsheet.)
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
Recovery year
1
10 years
10%
18%
14%
12%
9%
8%
7%
6%
6%
6%
4%
100%
100%
100%
100%
Totals
*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
convention.
2345 000 g
6
7
8
9
10
11
3 years
33%
45%
15%
7%
Percentage by recovery year*
5 years
20%
32%
19%
12%
12%
5%
Print
Done
7 years
14%
25%
18%
12%
9%
9%
9%
4%
X
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