Hope's Dance Company, Inc., a manufacturer of dance and exercise apparel, is considering replacing an existing piece of equipment with a more sophisticated machine. The following data is given: (SHOW EVERY MANUAL COMPUTATION)

OLD MACHINERY		NEW / PROPOSED MACHINERY
Original Cost	100,000	Cost	150,000
Purchased 2 years ago		Installation	20,000
Depreciation using MACRS over 5 years recovery		Depreciation using MACRS over 5 years recovery.
Current Sale Value	105,000	5-year usable life remaining
5-year usable life remaining
The firm pays 21 percent taxes on ordinary income and capital gains.

A.

Calculate the book value of the existing (old) machine being replaced.

B.

Calculate the tax adjustment effect from the sale of the existing machine.

C.

Calculate the initial investment of the proposed replacement project.

Given the following EXTRA data, compute the Incremental annual cash flows up to year 3.

Earnings before depreciation and taxes (EBDT) for existing and proposed machine:

OLD MACHINERY		NEW / PROPOSED MACHINERY
Years		Years
1	160,000	1	170,000
2	150,000	2	170,000
3	140,000	3	170,000
4	140,000	4	170,000
5	140,000	5	170,000