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

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