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 Cash Savings $ 1 2 4 69,000 59,000 57,000 55,000 3 52000 6 41,000 The firm's tax rate is 25 percent and the cost of capital is 10 percent. 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 oost 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 Base Percentage Depreciation Annual Depreciation 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.) Your Depreciation Percentage Annual Base Depreciation Depreciation 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.) Depreciation Depreciation Tax Shield on New on Old Depreciation Benefits Equipment Equipment Incremental T Rate 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.) 1.1. 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.) 1-2 Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the nearest whole dollar. k-1. Compare the present value of the incremental benefits to the net cost of the new equipment (e). (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) 6:2. Should the replacement be undertaken? Yes No Te 1212 Depecablon persones protodin decir T MORSORS 13 CRS MUCRS 15 20 CRSWERS 2 013 0100 0000 000 1155 115 AT 102 01 05030567 0. 0 0404 04 0402 00002446 04 3040722 .650 036 0352 0322 20317 02 7 0475 0.0 0.250 0.250 0.229 153 038 0 0 1.000 1.000 1.000 1.000 0672 Appendic e Presse 51 0015 08 0.005 S8833 0.002 0.002 0.001 0.001 0.0010
