Question
Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $
Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $ 10000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. The new machine costs $ 24400 and requires $ 1960 in installation costs. The firm is subject to a 40 % tax rate. In each of the following cases, calculate the initial investment for the replacement.
a. EMC sells the old machine for $ 11200.
b. EMC sells the old machine for $6920.
c. EMC sells the old machine for $ 2900.
d. EMC sells the old machine for $ 1520.
Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes 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% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100%
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