Question
Hercules Exercise Equipment Company purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and
Hercules Exercise Equipment Company purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $24,800. A new piece of equipment will cost $148,000. 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 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Year Cash Savings
1 $ 62,000
2 54,000
3 52,000
4 50,000
5 47,000
6 36,000
The firms tax rate is 25 percent and the cost of capital is 12 percent.
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