Apply the Concepts

Currently, Lewis Company uses two types of manufacturing equipment $($M$1$ and M$2)$ to produce one of its products. It is now possible to replace these two machines with a flexible manufacturing system that has a gross cost of $$8,700,000.$ Management wants to know the net investment needed to acquire the flexible system. If the system is acquired, the old equipment will be sold. Lewis has a tax rate of $40$ percent. Data relating to the decision are given below:

Disposition of Old Machines

$\backslash$table$[[,$Book Value,Sale Price$],[$M$1,$$$600,000,$$$780,000$