Degnan Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.

Facts:

Existing machine Proposed machine

Cost=$100,000 Cost= $150,000

Purchased 2 years ago Installation = $20,000

Depreciation using MACRS over a 5-year Depriciation the MACRS 5-year recovery schedule

Current market value= $105,000

5 year usable life remaining 5 year usable life expected

Earnings before depreciation and taxes:

Existing machine Proposed machine

Year 1 $160,000 1 $170,000

2 150,000 2 170,000

3 140,000 3 170,000

4 140,000 4 170,000

5 140,000 5 170,000

The firm pays 40 percent taxes on ordinary income and capital gains.

------Calculate the book value of the existing asset being replaced.