HMG Sports Medicine LLC$.$ purchased a computerized measuring device two years ago for

$$64,000.$ The equipment falls into the five$-$year category for MACRS depreciation and can

currently be sold for $$27,400.$ A new piece of equipment will cost $$177,000.$ 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.

The firm's tax rate is $26$ percent and the cost of capital is $11$ percent.

a$.$ What is the book value of the old equipment?

b$.$ What is the tax loss on the sale of the old equipment?

c$.$ What is the tax benefit from the sale?

d$.$ What is the cash inflow from the sale of the old equipment?

e$.$ What is the net cost of the new equipment? $($Include the inflow from the sale of

the old equipment.$)$

f$.$ Determine the depreciation schedule for the new equipment.

g$.$ Determine$|$the depreciation schedule for the remaining years of the old

equipment.

h$.$ Determine the incremental depreciation between the old and new equipment

and the related tax shield benefits.

i$.$ Compute the aftertax benefits of the cost savings.

j$.$ Add the depreciation tax shield benefits and the aftertax cost savings, and

determine the present value.

k$.$ Compare the present value of the incremental benefits $($j$)$ to the net cost of the

new equipment $($e$).$ Should the replacement be undertaken?