iniaal investment Basic Calculabon Cuing Corporason considerng the purna se af a
ID: 2621180 • Letter: I
Question
iniaal investment Basic Calculabon Cuing Corporason considerng the purna se af a ne paang machine to eo ace re esag on. The e sting machine was puoased 4 years ago at an nstased cost of S2 300 it was bang deprecated under MACp?using a 5year recovery penod (Seetable E tr the appicable deprecaben cetages )Theechm g machine expeded to hav. a usable the of at wast 5 mo·years The new machme costs $35 100 and eavees $4500 nrstatation costs, e wg be decreated usng a 5 year recovery perod under MACRS The eostng mocne can ament y be sold for S25 200 wt out i cum ng ary removal or cieanup costs The Sm is s oe t to 40% tax rate Caoate te ntial nvestment assoc ated winte proposed purchase of a new grading machine The nnal nvestment we be S? Rund to te nearest coa)| 0 Data Table (Cick on the lcon located on the bop-right cormer of the data table below in onder to copy its contents into a spreadsheet) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Yeer Recovery year r 32 25 5% 9% 9% 4% 8% 7% Enter your answer in the answer boxExplanation / Answer
Cost of old machine = $20,300
Machine is used for 4 year.
so existing machine deprecietd value = 20% + 32% + 19% + 12%
= 83%
Existing machine is 83% depreciated.
So, Current book value of existing machine = $20,300 × (1 - 83%)
= $3,451.
So, Current book value of existing machine is $3,451.
Market value of existing machine = $25,200
Tax rate = 40%
after tax net salvage value of existing machine = $3,451 + ($25,200 - $3,451) × (1 - 40%)
= $3,451 + $13,049.40
= $16,500.40.
After tax salvage value of existing machine is $16,500.40.
Cost of new machine = $35,100
Installation Cost = $4,500.
Total Initial Investment = $35,100 + $4,500 - $16,500.40
= $23,099.60.
Total Initial investment is $23,099.60 or $23,100.
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