Problem 12-33 Replacement decision analysis [LO12-4]

Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $84,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $37,800. A new piece of equipment will cost $260,000. 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		$	64,000
2			54,000
3			52,000
4			50,000
5			47,000
6			36,000

The firms tax rate is 40 percent and the cost of capital is 10 percent.

a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.)