Can you please check Answer "B". I think its right but not sure. Also, I keep getting J-2 and K-1 wrong and I can't figure it out. 
Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,800. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $ 61,000 51,000 49,000 47,000 44,000 33,000 The firm's tax rate is 25 percent and the cost of capital is 10 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ 37,440 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ 2,640 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ 660 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ 35,460 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net cost $ 194,540 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Percentage Depreciation 0.200 0.320 0.192 0.115 0.115 0.058 Depreciation Base $ 230,000 230,000 230,000 230,000 230,000 230,000 3 Annual Depreciation $ 46.000 73,600 44,160 26.450 26,450 13,340 $ 230,000 4 5 6 g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Depreciation Base $ 78,000 78.000 78,000 78,000 Percentage Annual Depreciation Depreciation 0.192 $ 14,976 0.1151 8,970 8,970 0.058 4,524 3 0.115 4 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Tax Rate Tax Shield Benefits 1 0.25 $ Depreciation on Old Equipment $ 14,976 8,970 8,970 4.524 2 Depreciation on New Equipment $ 46,000 73,600 44,160 26.450 26,450 13,340 0.25 Incremental Depreciation $ 31,024 64.630 35,190 21.926 26.450 13,340 3 0.25 7,756 16,158 8.798 5,482 6,613 3,335 4 5 0 0.25 0.25 0.25 6 01 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 Savings $ 61,000 51,000 49,000 47,000 44,000 3 (1 - Tax Rate) Aftertax Savings 0.75 $ 45,750 0.75 38,250 0.75 36,750 0.75 35,250 0.75 33,000 0.75 24,750 4 5 6 33,000 j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Aftertax Cost Savings Total Annual Benefits 1 $ 2 Tax Shield Benefits from Depreciation 7,756 16,158 8,798 5,482 6,613 3,335 3 45,750 38.250 36,750 35,250 33,000 24,7501 53,506 54,408 45,548 40,732 39,613 28.085 4 5 6 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Present value $ 186,180 k-1. Compare the present value of the incremental benefits (i) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value $ (8,360) Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year MACRS 5-Year MACRS 10-Year MACRS 20-Year MACRS 0.038 0.072 1 2 3 4 0.333 0.445 0.148 0.074 0.200 0.320 0.192 0.115 0.115 0.058 7-Year MACRS 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 5 6 7 8 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 15-Year MACRS 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 0.067 0.062 0.057 0.053 0.045 0.045 9 10 11 12 .. 13 14 15 - 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 16 17 18 19 20 21 1.000 1.000 1.000 1.000 1.000 1 Appendix B Present value of $1, PVC PV = FV Percent Period 196 4% 5% 11% 9% 0.917 12% 0.893 0.926 2 2% 0.980 0.961 0.942 0.924 0.906 0.888 6% 0.943 0.890 0.840 0.962 0.925 0.889 3 0.901 0.812 0.731 0.659 0.593 0.535 4 5 6 7 8 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.871 0.853 0.837 0.820 9 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 10 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 11 12 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.233 0.174 0.097 0.054 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 13 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.022 0.009 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.013 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 14 15 16 17 18 19 20 25 30 0.828 0.820 0.104 0.232 0.215 0.146 0.099 0.780 0.478 0.412 0.307 0.228 0.277 0.258 0.184 0.131 0.067 0.034 0.375 0.308 0.208 0.141 0.742 0.672 0.608 0.295 0.231 0.142 0.087 0.074 0.044 0.015 0.059 0.033 0.011 0.003 40 0.046 0.021 50 0.005 Appendix B (concluded) Present value of $1 Percent Period 14% 15% 17% 18 138 0.885 19% 0.840 20 0.833 30. 0769 35% 0.741 40% 0.714 1 0870 2 0.855 0.731 0.624 0.706 0.593 3 0.877 0.769 0.675 0.592 0.519 0.456 25% 0.800 0.640 0.512 0.410 0.328 0.262 4 0.549 0.406 0.301 0.223 0.165 5 6 7 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 8 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 9 10 11 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.016 0.007 0.001 0 12 0.400 0.351 0.308 0.270 0.237 0.208 . 182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.038 .020 0.005 0.001 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0.009 0.002 13 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.001 0.592 0.455 0.350 0.269 0.207 . 159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.001 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 .088 0.074 0.062 .052 0.044 0.037 .031 0.013 0.005 0.001 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0.510 0.364 0.260 . 186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 .002 .001 14 0.122 .091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.210 . 168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 .001 0 15 0.141 0.123 0.107 0.093 0.081 0.070 0.061 .030 .015 16 17 18 19 20 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.001 25 0.001 0.047 0.026 0.008 0.002 30 40 50 0.004 0.001 Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $78,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $34,800. A new piece of equipment will cost $230,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $ 61,000 51,000 49,000 47,000 44,000 33,000 The firm's tax rate is 25 percent and the cost of capital is 10 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value $ 37,440 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss $ 2,640 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit $ 660 d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow $ 35,460 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net cost $ 194,540 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Percentage Depreciation 0.200 0.320 0.192 0.115 0.115 0.058 Depreciation Base $ 230,000 230,000 230,000 230,000 230,000 230,000 3 Annual Depreciation $ 46.000 73,600 44,160 26.450 26,450 13,340 $ 230,000 4 5 6 g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Depreciation Base $ 78,000 78.000 78,000 78,000 Percentage Annual Depreciation Depreciation 0.192 $ 14,976 0.1151 8,970 8,970 0.058 4,524 3 0.115 4 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year Tax Rate Tax Shield Benefits 1 0.25 $ Depreciation on Old Equipment $ 14,976 8,970 8,970 4.524 2 Depreciation on New Equipment $ 46,000 73,600 44,160 26.450 26,450 13,340 0.25 Incremental Depreciation $ 31,024 64.630 35,190 21.926 26.450 13,340 3 0.25 7,756 16,158 8.798 5,482 6,613 3,335 4 5 0 0.25 0.25 0.25 6 01 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 Savings $ 61,000 51,000 49,000 47,000 44,000 3 (1 - Tax Rate) Aftertax Savings 0.75 $ 45,750 0.75 38,250 0.75 36,750 0.75 35,250 0.75 33,000 0.75 24,750 4 5 6 33,000 j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year Aftertax Cost Savings Total Annual Benefits 1 $ 2 Tax Shield Benefits from Depreciation 7,756 16,158 8,798 5,482 6,613 3,335 3 45,750 38.250 36,750 35,250 33,000 24,7501 53,506 54,408 45,548 40,732 39,613 28.085 4 5 6 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Present value $ 186,180 k-1. Compare the present value of the incremental benefits (i) to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Net present value $ (8,360) Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year MACRS 5-Year MACRS 10-Year MACRS 20-Year MACRS 0.038 0.072 1 2 3 4 0.333 0.445 0.148 0.074 0.200 0.320 0.192 0.115 0.115 0.058 7-Year MACRS 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 5 6 7 8 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 15-Year MACRS 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 0.067 0.062 0.057 0.053 0.045 0.045 9 10 11 12 .. 13 14 15 - 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 16 17 18 19 20 21 1.000 1.000 1.000 1.000 1.000 1 Appendix B Present value of $1, PVC PV = FV Percent Period 196 4% 5% 11% 9% 0.917 12% 0.893 0.926 2 2% 0.980 0.961 0.942 0.924 0.906 0.888 6% 0.943 0.890 0.840 0.962 0.925 0.889 3 0.901 0.812 0.731 0.659 0.593 0.535 4 5 6 7 8 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.871 0.853 0.837 0.820 9 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 10 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 11 12 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.233 0.174 0.097 0.054 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 13 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.092 0.057 0.022 0.009 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.013 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 14 15 16 17 18 19 20 25 30 0.828 0.820 0.104 0.232 0.215 0.146 0.099 0.780 0.478 0.412 0.307 0.228 0.277 0.258 0.184 0.131 0.067 0.034 0.375 0.308 0.208 0.141 0.742 0.672 0.608 0.295 0.231 0.142 0.087 0.074 0.044 0.015 0.059 0.033 0.011 0.003 40 0.046 0.021 50 0.005 Appendix B (concluded) Present value of $1 Percent Period 14% 15% 17% 18 138 0.885 19% 0.840 20 0.833 30. 0769 35% 0.741 40% 0.714 1 0870 2 0.855 0.731 0.624 0.706 0.593 3 0.877 0.769 0.675 0.592 0.519 0.456 25% 0.800 0.640 0.512 0.410 0.328 0.262 4 0.549 0.406 0.301 0.223 0.165 5 6 7 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 8 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 9 10 11 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037 0.016 0.007 0.001 0 12 0.400 0.351 0.308 0.270 0.237 0.208 . 182 0.160 0.140 0.123 0.108 0.095 0.083 0.073 0.038 .020 0.005 0.001 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0.009 0.002 13 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.001 0.592 0.455 0.350 0.269 0.207 . 159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.001 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 .088 0.074 0.062 .052 0.044 0.037 .031 0.013 0.005 0.001 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0.510 0.364 0.260 . 186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 .002 .001 14 0.122 .091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.210 . 168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 .001 0 15 0.141 0.123 0.107 0.093 0.081 0.070 0.061 .030 .015 16 17 18 19 20 0.093 0.080 0.069 0.060 0.051 0.024 0.012 0.003 0.001 25 0.001 0.047 0.026 0.008 0.002 30 40 50 0.004 0.001
