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 accurs .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 $ 69,000 2 59,000 57,000 55.000 5 52 000 6 41,000 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 ve 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. 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.) Tax benefit .. What is the net oost 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.) Netcost 1. 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 Depreciation Depreciation a. 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 decimal places.) Depreciation Percentage 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.) Tax Shield E E Depreciation for Rate T o Decor ate Benefits Compute the attestax 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. Add the depreciation tax shield bereits and the aftertas 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. kel. 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 jodicated by a minus sign. Round your answer to the nearest whole dollar.) 6:2 Should the replacement be undertaken? App SP -. Yes No D . Depe n de
