Problem 12-33 Replacement decision analysis (LO12-4] new Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,80o0. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Cash Year Savings $ 61,000 2 51,000 49,000 47,000 44,000 33,000 The firm's tax rate is 25 percent and the cost of capital is 10 percent.
Problem 12-33 Replacement decision analysis (LO12-4] new Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,80o0. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Cash Year Savings $ 61,000 2 51,000 49,000 47,000 44,000 33,000 The firm's tax rate is 25 percent and the cost of capital is 10 percent.
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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![**Problem 12-33 Replacement Decision Analysis [LO12-4] New**
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,800. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Cash Savings |
|------|--------------|
| 1 | $61,000 |
| 2 | $51,000 |
| 3 | $49,000 |
| 4 | $47,000 |
| 5 | $44,000 |
| 6 | $33,000 |
The firm's tax rate is 25 percent and the cost of capital is 10 percent.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7b07311e-f579-4ac8-b710-7e0c1ec8bc92%2F7e44a305-4de2-4295-9894-cef7df86d8d2%2Flcm4ehu_processed.png&w=3840&q=75)
Transcribed Image Text:**Problem 12-33 Replacement Decision Analysis [LO12-4] New**
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,800. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
| Year | Cash Savings |
|------|--------------|
| 1 | $61,000 |
| 2 | $51,000 |
| 3 | $49,000 |
| 4 | $47,000 |
| 5 | $44,000 |
| 6 | $33,000 |
The firm's tax rate is 25 percent and the cost of capital is 10 percent.
![**J-2. Compute the Present Value of the Total Annual Benefits.**
To calculate the present value of the total annual benefits, follow these steps:
- Do not round intermediate calculations.
- Round your final answer to the nearest whole dollar.
**Present Value**: [Input Box]
---
**K-1. Compare the Present Value of Incremental Benefits (j) to the Net Cost of New Equipment (e).**
- Do not round intermediate calculations.
- Indicate any negative amount with a minus sign.
- Round your final answer to the nearest whole dollar.
**Net Present Value**: [Input Box]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7b07311e-f579-4ac8-b710-7e0c1ec8bc92%2F7e44a305-4de2-4295-9894-cef7df86d8d2%2Fbdxyv4l_processed.png&w=3840&q=75)
Transcribed Image Text:**J-2. Compute the Present Value of the Total Annual Benefits.**
To calculate the present value of the total annual benefits, follow these steps:
- Do not round intermediate calculations.
- Round your final answer to the nearest whole dollar.
**Present Value**: [Input Box]
---
**K-1. Compare the Present Value of Incremental Benefits (j) to the Net Cost of New Equipment (e).**
- Do not round intermediate calculations.
- Indicate any negative amount with a minus sign.
- Round your final answer to the nearest whole dollar.
**Net Present Value**: [Input Box]
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