Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $94,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $42,800. A new piece of equipment will cost $255,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12-12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 Cash Savings $69,000 59,000 57,000 55,000 52,000 41,000 6 The firm's tax rate is 25 percent and the cost of capital is 10 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Book value b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax loss c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Tax benefit d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Cash inflow e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Net cost f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Depreciation Percentage Annual Year Base DepreciatioDepreciation 1 WIN g. Determine the depreciation schedule for the remaining years of the old equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year Depreciatio Percentage Annual Base DepreciatioDepreciation h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Depreciatio Depreciationcremental on New on Old | Tax Rate Year Tax Shield Benefits Equipment Equipment Depreciation Fax 1 2 5 6 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) (1 Tax Rate) Aftertax Savings Year Savings 69,000 2 59,000 3 57,000 4 55,000 51 52,000 61 41,000+ j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Tax Shield Aftertax Benefits | Cost Year from Total Annual Benefits Depreciation Savings OWN Appendix B Present value of $1, PV, PV=FV Period 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.780 0.742 0.672 0.608 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 Percent Percent 6% 7% 0.943 0.935 0.890 0.873 0.840 0.816 0.792 0.763 0.747 0.713 0.705 0.666 0.665 0.623 0.627 0.582 0.592 0.544 0.558 0.508 0.527 0.475 0.497 0.444 0.469 0.415 0.442 0.388 0.417 0.362 0.394 0.339 0.371 0.317 0.350 0.296 0.331 0.277 0.312 0.258 0.233 0.184 0.174 0.131 0.097 0.067 0.054 0.034 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.146 0.099 0.046 0.021 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.013 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124 0.074 0.044 0.015 0.005 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.059 0.033 0.011 0.003 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.375 0.308 0.208 0.141 0.092 0.057 0.022 0.009 Appendix B (concluded) Present value of $1 Period 13% 0.885 0.783 0.693 0,613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 0.047 0.026 0.008 0.002 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.03 0.073 0.038 0.020 0.005 0.001 15% 0.870 0.756 0.658 0.572 0.497 0.432 0.376 0.327 0.284 0.247 0.215 0.187 0.163 0.141 0.123 0.107 0.093 0.081 0.070 0.061 0.030 0.015 0.004 0.001 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0,060 0.051 0.024 0,012 0.003 0.001 17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0,178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043 0.020 0,009 0.002 o 18% 0.847 0.718 0.609 0.515 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 Percent 19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.074 20% 25% 0.833 0.800 0.694 0.640 0.579 0.512 0,482 0.410 0.402 0.328 0.335 0.262 0.279 0.210 0.2330. 168 0.194 0.134 0.162 0.107 0.135 0 .086 0.112 0.069 0.093 0.055 0.078 0.044 0.065 0.035 0.028 0.045 0.023 0.038 0.018 0.031 0.014 0.026 0.012 0.010 0.004 0,004 0.001 0.001 o o o 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.1230 0.094 0.073 0.056 0.043 35% 0.741 0.549 0.4 0.301 0.223 0.165 0.122 .091 0.067 0.050 0.037 0.027 0.020 0.015 0.011 0.008 0.006 0.005 0.003 0.002 0.001 o o o 40% 0.714 0.510 0.364 0,260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.01% 0.013 0.009 0.006 0.005 0.003 0.002 0.002 0.001 50% 0.667 0.444 0.296 O.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.033 .071 .062 0.054 .002 0.001 0.001 0.060 0.051 0.043 0.037 0.016 0.00 0.001 o 0.052 0.044 0.037 0.031 0.013 0.005 0.001 o 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.001 o o o o o o 50 .................. Table 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year MACRS 5-Year 7-Year MACRS MACRS 10-Year 15-Year MACRS MACRS 20-Year MACRS 0.333 0.445 0.148 0.074 0.200 0.320 0.192 0.115 0.115 0.058 0.143 0.245 0.175 0.125 0.089 0.089 0.089 0.045 0.100 0.180 0.144 0.115 0.092 0.074 0.066 0.066 0.065 0.065 0.033 0.050 0.095 0.086 0.077 0.069 0.062 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.059 0.030 0.038 0.072 0.067 0.062 0.057 0.053 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.045 0.017 1.000 1.000 1.000 1.000 1.000 1.000