Calculating initial investment ??

Vastine? Medical, Inc., is considering replacing its existing computer? system, which was purchased 2 years ago at a cost of $327,000. The system can be sold today for $193,000. It is being depreciated using MACRS and a? 5-year recovery period? (see the table)

A new computer system will cost $491,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and capital gains.

a. Calculate the book value of the existing computer system.

book value = cost - accumulated depreciation

round to the nearest dollar

b. Calculate the? after-tax proceeds of its sale for $193,000.

taxes on recapture of depreciation = (sale price - book value) x tax rate

round to the nearest dollar

c. Calculate the initial investment associated with the replacement project.

initial investment = cost of new machine - after-tax proceeds

round to the nearest dollar

Data Table (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 5 years 20% 32% 19% 12% 12% 5% 7 years 14% 25% 18% 12% 9% 9% 9% 4% 10 years 10% 18% 14% 12% 9% 5% 7% 6% 6% 3 years 33% 45 15% 7% Recovery year 4 Print Done