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Gaza corporation is considering the purchase of a new item of equipment to replace the current one. The new equipment will cost $80,000 and requires
Gaza corporation is considering the purchase of a new item of equipment to replace the current one. The new equipment will cost $80,000 and requires $10,000 for installation cost. It will be depreciated using the straight line method over a five year period. The old (current) equipment was purchased for $50,000 five years ago. It was being depreciated using the straight line method over a five years economic life. The old machine market value today is $15,000. As a result of the proposed replacement the corporation's investment in working capital is expected to increased by $12,000. However the tax rate is 20%. a. Calculate the book-value of the old machine. b. Calculate the taxes, if any, attributable to the sale of the old machine. c. Determine the initial investment associated with the proposed equipment replacement
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