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recaptured depreciation taxed as ordinary income Table 11.2 Computer Disk Duplicators, Ine. has been considering several capital investment proposals for ne year beginning in 2014. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below, In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent. Type of Capital Budgeting Decision Proposal Expansion Replacement Mutually Replacement Mutually MACRS RATE Recovery year 3 years 5 years7 years 10 years 33% 45 15 Exclusive with 3 $200,000 Exclusive Type of Project Cost of nevw asset Installation costs MACRS (new asset) Original cost of old asset Purchase date (old asset) Sale proceds (old esset) MACRS (old asset) Annual net profits before depreciation & taxes (old) Annual net profits before depreciation & taxes (new) *Not applicable Independent $1.500,000 with 2 10% 18 14 12 20 32 19 12 12 14 $15,000 5 years $100,000 1/1/2013 $120,000 5 years 25 18 12 10 years N/A N/A 5 years $80,000 1/1/2010 $50,000 S yoars N/A N/A $30,000 $25,000 N/A 10 $250.000 $100,000 $175,000 (See Table 11.2) 27. For Proposal 1, the initial outlay equals A) $1,620,000 B) $1,380,000 C) $1,440,000 D) $1,500,000 (Sec Table 11.2) For Proposal 1, the depreciation expense for year 2 is A) $270,000 B) SI15,200 C) S150,000 D) S300,000 28. For Proposal 1, the annual incremental after-tax cash flow from operations for year 2 is (See Table 11.2) 29 A) $60,000 B) $300,000 C) $258,000 D) $210,000 TMitactratotectretort