Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine un- der MACRS, using a 5-year recovery period. (See Table 4.2 on page 166 for the ap- plicable depreciation percentages.) The new machine costs $24,000 and requires $2,000 in installation costs. The firm is subject to a 40% tax rate. In each of the fol- lowing cases, calculate the initial investment for the replacement. a. EMC sells the old machine for $11,000. b. EMC sells the old machine for $7,000. c. EMC sells the old machine for $2,900. d. EMC sells the old machine for $1,500.

9 a TABLE 4.2 for First Four Property Classes Rounded Depreciation Percentages by Recovery Year Using MACRS 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 6 5 9 8 7 7 8 4 6 9 6 10 6 11 Totals 100% 100% 100% 100% "These percentages have been rounded to the nearest whole percent to simplify calculations while retain- ing realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention. 9