Calculating initial investmentVastine Medical, Inc., is considering replacing its existing computer system, which was purchased 3 years ago at a cost of $325,000. 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 $502,000 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 $193,000

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

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%