Question:

DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $135,000. The firm has a chance to sell its 5-year-old roaster for $35,100. The existing roaster originally cost $59,800 and was being depreciated using MACRS and a 7-year recovery period.

DuPree is subject to a 40% tax rate.

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 .................. - $ 19,200

Inventory .................... + 50,600

Accounts payable .......... + 39,300

Accounts receivable ....... + 69,900

Cash ................................... 0

Notes payable ................ +15,500