Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased

2 years ago at a cost of $335,000.

The system can be sold today for $210,000.

It is being depreciated using MACRS and a 5-year recovery period (see the table).

Rounded_Depreciation_Percentages_by_Recovery_Year_Using_MACRS_for_

First_Four_Property_Classes * * * *

* 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%

* * * * *

A new computer system will cost

$493,000 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.

b. Calculate the after-tax proceeds of its sale for $210,000.

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

*Round to the nearest dollar