the five-year category for MACRS depreciation and can currently be sold for $21,800. A new plece of equipment will cost $142,000. It Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $52.000. The equipment falls into 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 12-12 Use Areendix. for an approximate answer but calculate your final answer using the formula and financial Calculator methods. Year 1 Cash Savings $ 59,800 51,eee 49,800 47, Bee 44.ee 33,800 5 6 The firm's tax rate is 25 percent and the cost of capital is 9 percent a. What is the book value of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole doller) Answer is complete and correct. Book value $ 24 960 b. What is the tax loss on the sale of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. 3.160 Tex loss c. What is the tax benefit from the sale? (Do not round Intermediate calculations and round your answer to the nearest whole dollar) Answer is complete and correct. Tax benefit s 790 d. What is the cash Inflow from the sale of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Cash inflow 22.500 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment. (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Net costs 119.410 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Answer is complete and correct. Year 1 3 Depreciation Base $ 142.000 142.000 142,000 142.000 142.000 142.000 Percentage Annual Depreciation Depreciation 0.2008 28 400 @ 0.320 45.440 0.192 27 264 0.115 16.330 0.115 16.330 0.058 8.236 $ 142 000 4 4 5 6 g. Determine the depreciation schedule for the remaining years of the old equipment (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Answer is complete and correct. Year 1 2 3 4 Depreciation Base s 52.000 52.000 52.000 52,000 Percentage Depreciation 0.190 0.115 0.115 0.058 Annual Depreciation 9,984 5,980 5,980 3,016 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rete as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 2 3 Depreciation on New Equipment s 28.400 45,440 27,284 16.330 Answer is complete and correct. Depreciation Tax Shield Incremental on Old Tax Rate Taxshi Equipment Depreciation Benefits 9.984S 18,416 0.25s 4,604 5.980 39,460 025 9,865 5.980 21.284 0.25 5,321 3.016 13.314 0.25 3,329 00 16 330 0.25 4083 0 8.236 0.25 2.059 4 5 16.330 6 8.236 I. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 3 3 4 5 6 Savings 5 59,000 51,000 49,000 47 000 44,000 33.000 Answer is complete and correct. (1 - Tax Aftertax Rate) Savings 0.75 44.250 0.75 38 250 0.75 36.750 0.75 35250 0.75 33 000 0.75 24750 J-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year 1 2 Answer is complete and correct. Tax Shield Benefits Alberta Total Annual from Cost Savings Benefits Depreciation 4604 442505 48,854 9,865 38.250 48.115 5,321 36 750 42.071 3,320 35.250 38.579 4,083 33.000 37 083 2,059 24.750 26,809 3 3 5 6 J-2. Compute the present value of the total annual benefits. (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Present value is 187.154 K-1. Compare the present value of the incremental benefits to the net cost of the new equipment (el. (Do not round Intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole doller.) Answer is complete but not entirely correct. Net present 5 value 67.744 K-2. Should the replacement be undertaken? Yes No the five-year category for MACRS depreciation and can currently be sold for $21,800. A new plece of equipment will cost $142,000. It Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $52.000. The equipment falls into 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 12-12 Use Areendix. for an approximate answer but calculate your final answer using the formula and financial Calculator methods. Year 1 Cash Savings $ 59,800 51,eee 49,800 47, Bee 44.ee 33,800 5 6 The firm's tax rate is 25 percent and the cost of capital is 9 percent a. What is the book value of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole doller) Answer is complete and correct. Book value $ 24 960 b. What is the tax loss on the sale of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. 3.160 Tex loss c. What is the tax benefit from the sale? (Do not round Intermediate calculations and round your answer to the nearest whole dollar) Answer is complete and correct. Tax benefit s 790 d. What is the cash Inflow from the sale of the old equipment? (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Cash inflow 22.500 e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment. (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Net costs 119.410 f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Answer is complete and correct. Year 1 3 Depreciation Base $ 142.000 142.000 142,000 142.000 142.000 142.000 Percentage Annual Depreciation Depreciation 0.2008 28 400 @ 0.320 45.440 0.192 27 264 0.115 16.330 0.115 16.330 0.058 8.236 $ 142 000 4 4 5 6 g. Determine the depreciation schedule for the remaining years of the old equipment (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Answer is complete and correct. Year 1 2 3 4 Depreciation Base s 52.000 52.000 52.000 52,000 Percentage Depreciation 0.190 0.115 0.115 0.058 Annual Depreciation 9,984 5,980 5,980 3,016 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rete as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 2 3 Depreciation on New Equipment s 28.400 45,440 27,284 16.330 Answer is complete and correct. Depreciation Tax Shield Incremental on Old Tax Rate Taxshi Equipment Depreciation Benefits 9.984S 18,416 0.25s 4,604 5.980 39,460 025 9,865 5.980 21.284 0.25 5,321 3.016 13.314 0.25 3,329 00 16 330 0.25 4083 0 8.236 0.25 2.059 4 5 16.330 6 8.236 I. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 2 3 3 4 5 6 Savings 5 59,000 51,000 49,000 47 000 44,000 33.000 Answer is complete and correct. (1 - Tax Aftertax Rate) Savings 0.75 44.250 0.75 38 250 0.75 36.750 0.75 35250 0.75 33 000 0.75 24750 J-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate calculations and round your answers to the nearest whole dollar.) Year 1 2 Answer is complete and correct. Tax Shield Benefits Alberta Total Annual from Cost Savings Benefits Depreciation 4604 442505 48,854 9,865 38.250 48.115 5,321 36 750 42.071 3,320 35.250 38.579 4,083 33.000 37 083 2,059 24.750 26,809 3 3 5 6 J-2. Compute the present value of the total annual benefits. (Do not round Intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Present value is 187.154 K-1. Compare the present value of the incremental benefits to the net cost of the new equipment (el. (Do not round Intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole doller.) Answer is complete but not entirely correct. Net present 5 value 67.744 K-2. Should the replacement be undertaken? Yes No