Computer Disk Duplicators Inc has been considering several capital investment proposals for the year beginning in 2014 For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent 3 Replacement Mutually Exclusive with 3 $200,000 with 2 Proposal Type of Capital 1 Budgeting Decision Expansion Replacement Mutually Exclusive Type of Project Independent Cost of new asset $1,500,000 Installation costs $0 $0 MACRS (new asset) 10 years 5 years Original cost of old asset N/A $80.000 Purchase date (old asset) N/A 1/1/2010 Sale proceeds (old asset) N/A $50.000 MACRS (old asset) N/A 5 years Annual net profits before depreciation de taxes (old) N/A $30.000 Annual ret profits before depreciation & taxes (new) $250 000 $100,000 $300,000 $15,000 5 years $100,000 1/1/2013 $120,000 5 years $25,000 $175.000 Not applicable See Table 112) For Proposal 2 the tax effect on the sale of the existing asset at the end of the fifth year results in 525.280 tax liability 516.600 tax liability $14 560 tax liability $12.000 tax liability