Hercules Exercise Equipment Company purchased a computerized measuring device two years ago for $54,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $22,800. A new piece of equipment will cost $144,000. 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.

Year	Cash Savings
1	$ 60,000
2	52,000
3	50,000
4	48,000
5	45,000
6	34,000

f. Determine the depreciation schedule for the new equipment.

Note: Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.

g. Determine the depreciation schedule for the remaining years of the old equipment.

Note: Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits.

Note: Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.

i. Compute the aftertax benefits of the cost savings.

Note: Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits.

Note: Do not round intermediate calculations and round your answers to the nearest whole dollar.

j-2. Compute the present value of the total annual benefits.

Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.

k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e).

Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.

k-2. Should the replacement be undertaken?

multiple choice

Yes

No

g. Determine the depreciation schedule for the remaining years of the old equipment.

Note: Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.

h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits.

Note: Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.

i. Compute the aftertax benefits of the cost savings.

Note: Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.

j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits.

Note: Do not round intermediate calculations and round your answers to the nearest whole dollar.

j-2. Compute the present value of the total annual benefits.

Note: Do not round intermediate calculations and round your answer to the nearest whole dollar.

k-1. Compare the present value of the incremental benefits (j) to the net cost of the new equipment (e).

Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.

k-2. Should the replacement be undertaken?

multiple choice

Yes

No