Martin Company is acquiring a new copier for use in its office. The following data relate to the new copier:

Cost of the new copier

Annual salvage in cash operating costs

Salvage value of the new copier

Overhaul of the new copier required in the third year

Life of the new copier$150,000

40,000

6,000

5,000

8 yearsThe new copier would replace an old machine that has a remaining book value (for tax purposes) of $18,000. The

old machine can be sold now for $10,000. The company's tax rate is 30%.

a. Compute the after-tax savings in annual cash operating costs $ ______________

Compute the after-tax cost of the overhaul required in the third year. $ ______________

c. Compute the tax savings from the depreciation tax shield for each year and in total. The company uses the

MACRS tables and the copier is in the 5-year property class.

Year Cost MACRS

PercentageDepreciation

DeductionTax Rate Tax Shield- Income

Tax Savings1 $150,000 0.302 3 4 5 6Totald. Compute the after-tax benefit from the salvage value of the new copier. $ ______________

e. Compute the after-tax cash inflow from sale of the old machine.

Cash received from the sale $

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CMA / P2 / Sec. E / HW-4

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Tax savings from loss on sale:Current book value $Sale price nowLoss on disposalMultiply by the tax rate X 0.30Tax savings from lossTotal cash inflows $