A company is considering buying a new piece of machinery. A 10% interest rate will be used in the computations. Two models of the machine are available:

Machine IMachine II

Initial Cost$80,000$100,000

Salvage Value20,00025,000

Annual operating cost18,00015,000 first ten years

20,000 after

Useful life, years2025

MACRS class7 year7 year

(a) Determine which machine should be purchased, based on equivalent uniform annual cost.

(b) What is the capitalized cost of Machine I?

(c) Machine I is purchased and a fund is set up to replace Machine I at the end of 20 years. Compute the required uniform annual deposit.

(d) Machine I will produce an annual savings of material of $28,000. What is the rate of return if Machine I is installed?

(e) What will be the book value of Machine I after 2 years, based on 60% bonus depreciation with the balance using MACRS?

(f) what will the book value of Machine II be after 3 years, based on straight line depreciation?

(g) what would be the MACRS depreciation in the third year for Machine II?

Please show steps in Excel