Calculating initial in estaient DuPree Coffee Roasters, Inc., wishes to expand a

Question

Calculating initial in estaient DuPree Coffee Roasters, Inc., wishes to expand and modernize its The installed cost of a proposed computer-controlled automatic-teed roaster will be S139.000. The firm has a chance to sell its 4-year-old roaster for $35.800. The existing roaster original cost S60.000 and was being depreciated using MACRS and a 7-year recovery penod (see the table). Dupree pays taxes at a rate of 40% cm ordinary income and capital gains. What is the book mlue of the existing roaster.' Calculate the after-tax proceeds of the sale of the existing roaster. Calculate the change in net working capital using the following figures The remaining value of the existing roaster is S. The after-tax proceeds of the sale of the existing roaster will be S:

Explanation / Answer

Solution a:

Hence the book value of roaster at the year end 4th would be :

Cost - accumulated depreciation

60000 - 8571*4 = 60000 - 34284 = $25716

Solution B:

After tax sale Proceed would be

Since the price can be sold = 35800 whereas the book value = 25716

hence the profit = 35800 - 25716 = 10084

Tax of 40% on profit = 10084*.6

=$6050

Solution c:

Change in net working capital = -19500 +49900 = $30,400

Thank you.

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