ST11-1 Book value, taxes, and initial investment Irvin Enterprises is considering the pur- chase of a new piece of equipment to replace the current equipment. The new equip- ment costs $75,000 and requires $5,000 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. The old piece of equipment was pur- chased 4 years ago for an installed cost of $50,000; it was being depreciated under MACRS using a 5-year recovery period. The old equipment can be sold today for $55,000 net of any removal or cleanup costs. As a result of the proposed replace- ment, the firm's investment in net working capital is expected to increase by $15,000. The firm pays taxes at a rate of 40%. (Table 4.2 on page 117 contains the applicable MACRS depreciation percentages.) a. Calculate the book value of the old piece of equipment. b. Determine the taxes, if any, attributable to the sale of the old equipment. c. Find the initial investment associated with the proposed equipment replacement. TABLE 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 10 years Percentage by recovery year 5 years 7 years 20% 14% 3 years 33% 10% 2 10 100% 100% 100% 100% Totals "These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention