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33. Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation
33. Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $24.800. A new piece of equipment will cost $148,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years: Year 2.... Cost Savings $62,000 54,000 52,000 50,000 47,000 36,000 4 The firm's tax rate is 35 percent and the cost of capital is 12 percent. Compute the aftertax benefits of the cost savings. 1. Add the depreciation tax shield benefits and the aftertax cost savings, and determine the present value. (See Table 12-20 as an example.) k. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e). Should the replacement be undertaken
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