A firm is considering the purchase of a new machine to replace the current machine, and has the following information:

The new machine:

costs $100,000 and requires $20,000 in installation costs.

will be depreciated under MACRS using a 10 year recovery period.

The old machine:

was purchased 2 years ago for an installed cost of $71,000.

was being depreciated under MARS using a 10 year recovery period.

can be sold today for $52,000 net of any removal or cleanup costs.

As a result of the proposed replacement, firms investment in net working capital is expected to increase by $17,000

The firm pays taxes at a rate of 40 percent on both ordinary income and capital gains.

		Percentage by recovery year
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45	32	25	18
3	15	19	18	14
4	7	12	12	12
5		12	9	9
6		5	9	8
7			9	7
8			4	6
9				6
10				6
11				4
Totals	100%	100%	100%	100%

1-Calculate the book value of the old machine tool.

Total depreciation percentage ?

Accumulated depreciation ?

Book value ?

2-Determine the taxes, if any, attributable to the sale of the old machine tool.

taxes ?

3- Find the initial investment associated with the proposed equipment.

Installed cost of new equipment:

Cost of new equipment

Installation cost

Total installed cost-New

After tax proceeds from sale of old:

Proceeds from sale of old equipment

Taxes on sale of old equipment

Total after tax proceeds-old

Change in net working capital

Initial Investment