Initial investment at various sale prices Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. (See table LOADING... for the applicable depreciation percentages.) The new machine costs $23,500 and requires $2,050 in installation costs. The firm is subject to a 40% tax rate. In each of the following cases, calculate the initial investment for the replacement. a. EMC sells the old machine for $12,500. b. EMC sells the old machine for $7,010. c. EMC sells the old machine for $2,900. d. EMC sells the old machine for $1,410.
Calculate the initial investment at various sale prices below.
a. EMC sells the old machine for $12,500 . (Round to the nearest dollar.)
(a)
Cost of new asset
$
Installation cost
Total installed cost
$
Proceeds from sale of old asset
$
Tax on sale of old asset
$
Total after-tax proceeds
$
Initial investment
$
b. EMC sells the old machine for $7,010 . (Round to the nearest dollar.)
(b)
Cost of new asset
$
Installation cost
Total installed cost
$
Proceeds from sale of old asset
$
Tax on sale of old asset
$
Total after-tax proceeds
$
Initial investment
$
c. EMC sells the old machine for $2,900 . (Round to the nearest dollar.)
(c)
Cost of new asset
$
Installation cost
Total installed cost
$
Proceeds from sale of old asset
$
Tax on sale of old asset
$
Total after-tax proceeds
$
Initial investment
$
d. EMC sells the old machine for $1,410 . (Round to the nearest dollar.)
(d)
Cost of new asset
$
Installation cost
Total installed cost
$
Proceeds from sale of old asset
$
Tax on sale of old asset
$
Total after-tax proceeds
$
Initial investment
$
