P11–8 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, page 112). 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.

a. Calculate the book value of the existing computer system.

b. Calculate the after-tax proceeds of its sale for $200,000.

c. Calculate the initial investment associated with the replacement project.