K&M Winery has an old wine press that the company wants to replace with a more efficient press. The new press costs $110,000 with an additional $10,000 in installation costs. The old press was purchased two years ago for a cost of $60,000 and $10,000 in installation costs. It can be sold for a price of $40,000 today. The old press was depreciated under the MACRS 3-year recovery schedule while the new press will be depreciated under the MACRS 5-year recovery schedule. K&M Winery projects revenues to be $250,000 more with the new press each year for the next three years. Expenses are 80% of sales. The firm is in the 21% tax rate.

Calculate the tax effect from the sale of the existing asset.

Use year 1 (41.67%), year 2 (38.89%), year 3 (14.14%), year 4 (5.30%) for MACRS 3 year and

Use year 1 (25%), year 2 (30%), year 3 (18%), year 4 (11.37%), year 5 (11.37), year 6 (4.26) for MACRS 5 year