Hercules Exercise Equipment Company purchased a computerized measuring device two years ago for $84,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $37,800. A new piece of equipment will cost $205,000. 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 $ 64,000 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 10 percent. a. What is the book value of the old equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole dollar. b. What is the tax loss on the sale of the old equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole dollar. c. What is the tax benefit from the sale? Note: Do not round intermediate calculations and round your answer to the nearest whole dollar. d. What is the cash inflow from the sale of the old equipment? Note: Do not round intermediate calculations and round your answer to the nearest whole dollar. e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) Note: Do not round intermediate calculations and round your answer to the nearest whole dollar. 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 NoTable 12-12 Depreciation percentages (expressed in decimals) Depreciation Year 3-Year MACRS 5-Year MACRS 7-Year MACRS 10-Year MACRS 15-Year MACRS 20-Year MACRS 1 0.333 0.200 0.143 0.100 0.050 0.038 2 0.445 0.320 0.245 0.180 0.095 0.072 3 0.148 0.192 0.175 0.144 0.086 0.067 4 0.074 0.115 0.125 0.115 0.077 0.062 5 0.115 0.089 0.092 0.069 0.057 6 0.058 0.089 0.074 0.062 0.053 7 0.089 0.066 0.059 0.045 8 0.045 0.066 0.059 0.045 9 0.065 0.059 0.045 10 0.065 0.059 0.045 11 0.033 0.059 0.045 12 0.059 0.045 13 0.059 0.045 14 0.059 0.045 15 0.059 0.045 16 0.030 0.045 17 0.045 18 0.045 19 0.045 20 0.045 21 0.017 1.000 1.000 1.000 1.000 1.000 Appendix B Present value of $1, PVIF PV = FV[1 / (1 + i)n] Period Percent 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 25% 30% 35% 40% 50% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 0.667 2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.640 0.592 0.549 0.510 0.444 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.512 0.455 0.406 0.364 0.296 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.515 0.499 0.482 0.410 0.350 0.301 0.260 0.198 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.328 0.269 0.223 0.186 0.132 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.262 0.207 0.165 0.133 0.088 7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.210 0.159 0.122 0.095 0.059 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.168 0.123 0.091 0.068 0.039 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.134 0.094 0.067 0.048 0.026 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.107 0.073 0.050 0.035 0.017 11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.086 0.056 0.037 0.025 0.012 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.069 0.043 0.027 0.018 0.008 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.055 0.033 0.020 0.013 0.005 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.044 0.025 0.015 0.009 0.003 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.035 0.020 0.011 0.006 0.002 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.028 0.015 0.008 0.005 0.002 17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.023 0.012 0.006 0.003 0.001 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.018 0.009 0.005 0.002 0.001 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.014 0.007 0.003 0.002 0 20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.012 0.005 0.002 0.001 0 25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.004 0.001 0.001 0 0 30 0.742 0.552 0.412 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0.020 0.015 0.012 0.009 0.007 0.005 0.004 0.001 0 0 0 0 40 0.672 0.453 0.307 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0 0 0 0 0 50 0.608 0.372 0.228 0.141 0.087 0.054 0.034 0.021 0.013 0.009 0.005 0.003 0.002 0.001 0.001 0.001 0 0 0 0 0 0 0 0