Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
15th Edition
ISBN: 9780134476315
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 11, Problem 11.11P

Calculating initial investment Vastine Medical Inc. is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2). A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

  1. a. Calculate the book value of the existing computer system.
  2. b. Calculate the after-tax proceeds of its sale for $200,000.
  3. c. Calculate the initial investment associated with the replacement project.
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Vastine​ Medical, Inc., is considering replacing its existing computer​ system, which was purchased 2 years ago at a cost of $318,000. The system can be sold today for $203,000. It is being depreciated using MACRS and a​ 5-year recovery period​ (see the table). A new computer system will cost $506,000 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 $203,000. c. Calculate the initial cash flow associated with the replacement project.   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%…
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. c. Calculate the initial cash flow associated with the replacement project.
Interstate Manufacturing is considering either replacing one of its old machines with a new machine or having the old machine overhauled. Information about the two alternatives follows. Management requires a 10% rate of return on its investments.

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Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)

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