P11–9 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 4.2 on page 112 for the applicable depreciation percentages.) The new machine costs $24,000 and requires

$2,000 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 $11,000.

b. EMC sells the old machine for $7,000.

c. EMC sells the old machine for $2,900.

d. EMC sells the old machine for $1,500.