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QUESTION 54 Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster

QUESTION 54 Calculating initial investment DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 3-year-old roaster for $35,000.

The existing roaster originally cost $59,600 and was being depreciated using MACRS and a 7-year recovery period (see the table

DuPree pays taxes at a rate of 40% on ordinary income and capital gains.

a. What is the book value of the existing roaster?

b. Calculate the after-tax proceeds of the sale of the existing roaster.

c. Calculate the change in net working capital using the following figures:

Anticipated Changes in Current Assets and Current Liabilities

Accruals

-20,500

Inventory

+49,900

Accounts Payable

+40,700

Accounts Receivable

+71,000

Cash

0

Notes Payable

+15,600

d. Calculate the initial investment associated with the proposed new roaster. a. The remaining book value of the existing roaster is ______. (Round to the nearest dollar.) b. The after-tax proceeds of the sale of the existing roaster will be _____. (Round to the nearest dollar.) c. The change in net working capital will be ____________. (Round to the nearest dollar.) d. The initial investment associated with the proposed new roaster will be _______. (Round to the nearest dollar.) Rounded Depreciation Percentages by Recovery Year Using MACRS for

First Four Property Classes

Percentage by recovery year*

Recovery year

3 years

5 years

7 years

10 years

1

33%

20%

14%

10%

2

45%

32%

25%

18%

3

15%

19%

18%

14%

4

7%

12%

12%

12%

5

12%

9%

9%

6

5%

9%

8%

7

9%

7%

8

4%

6%

9

6%

10

6%

11

4%

Totals

100%

100%

100%

100%

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