Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $322,000. The system can be sold today for $201,000. It is being depreciated using MACRS and a 5-year recovery period (see the table attached). A new computer system will cost $505,000 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 $201,000.
Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $322,000. The system can be sold today for $201,000. It is being depreciated using MACRS and a 5-year recovery period (see the table attached). A new computer system will cost $505,000 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 $201,000.
Century 21 Accounting Multicolumn Journal
11th Edition
ISBN:9781337679503
Author:Gilbertson
Publisher:Gilbertson
Chapter19: Accounting For Plant Assets, Depreciation, And Intangible Assets
Section19.5: Declining-balance Method Of Depreciation
Problem 1WT
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Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $322,000. The system can be sold today for $201,000. It is being depreciated using MACRS and a 5-year recovery period (see the table attached).
A new computer system will cost $505,000 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 andcapital gains.
A new computer system will cost $505,000 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
a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for
$201,000.
c. Calculate the initial cash flow associated with the replacement project.
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