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 4 years ago at an installed cost of $ 19,700; it was being depreciated under MACRS using a 5-year recovery period. (See table 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$ 34,100 and requires $ 5,200 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $ 25,000 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. Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes 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%
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 4 years ago at an installed cost of $ 19,700; it was being depreciated under MACRS using a 5-year recovery period. (See table 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$ 34,100 and requires $ 5,200 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for $ 25,000 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. Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes 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%
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