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. 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

$1$ $ $60,000$

$252,000$

$350,000$

$448,000$

$545,000$

$634,000$

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?

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

No