TPC 07-03 (Static) [LO 7-5, 7-7, 7-8) MG, a corporation in the 21 percent marginal tax bracket, owns equipment that is fully depreciated. This old equipment is still operating and should continue to do so for four years (years 0, 1, 2, and 3). MG's chief financial officer estimates that repair costs for the old equipment will be $1,300 in year 0, $1,400 in year 1, $1,500 in year 2, and $1,600 in year 3. At the end of year 3, the equipment will have no residual value. . MG could junk the old equipment and buy new equipment for $5,000 cash. The new equipment will have a three-year MACRS recovery period, should not require any repairs during years 0 through 3, and will have no residual value at the end of year 3. Assume MG cannot make a Section 179 election to expense the $5,000 cost of the new equipment. Use a 10 percent discount rate. Use Table 7-2. Appendix A and Appendix B. Required: a-1. Calculate the NPV of after-tax cost if MG keeps the old equipment. a-2. Calculate the NPV of after-tax cost if MG buys new equipment. a-3. Which option (keep old or buy new) minimizes MG's after-tax cost? b. Assume MG can make a Section 179 election to expense the entire $5,000 cost of the new equipment. Under this change in facts, which option (keep old or buy new) minimizes MG's after-tax cost? Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Reg A3 Reg B Calculate the NPV of after-tax cost if MG keeps the old equipment. (Round intermediate computations and final answers to the nearest whole dollar amount. Cash outflows and Negative amount should be indicated by a minus sign.) Deductible Repair and Tax Savings Net Cash Present Value at at 21% Maintenance Flow 10% Year 0 $ 273 Year 1 294 Year 2 315 Year 3 336 NPV of after-tax cost $ 0 TPC 07-03 (Static) (LO 7-5, 7-7, 7-8) MG, a corporation in the 21 percent marginal tax bracket, owns equipment that is fully depreciated. This old equipment is still operating and should continue to do so for four years (years 0, 1, 2, and 3). MG's chief financial Officer estimates that repair costs for the old equipment will be $1,300 in year 0, $1,400 in year 1, $1,500 in year 2, and $1,600 in year 3. At the end of year 3, the equipment will have no residual value. MG could junk the old equipment and buy new equipment for $5,000 cash. The new equipment will have a three-year MACRS recovery period, should not require any repairs during years 0 through 3, and will have no residual value at the end of year 3. Assume MG cannot make a Section 179 election to expense the $5,000 cost of the new equipment. Use a 10 percent discount rate. Use Table 7-2, Appendix A and Appendix B. Required: a-1. Calculate the NPV of after-tax cost if MG keeps the old equipment. a-2. Calculate the NPV of after-tax cost if MG buys new equipment. a-3. Which option (keep old or buy new) minimizes MG's after-tax cost? b. Assume MG can make a Section 179 election to expense the entire $5,000 cost of the new equipment. Under this change in facts, which option (keep old or buy new) minimizes MG's after-tax cost? Complete this question by entering your answers in the tabs below. Req A1 Reg A2 Reg A3 Reg B ***** Calculate the NPV of after-tax cost if MG buys new equipment. (Round intermediate computations and final answers to the nearest whole dollar amount. Cash outflows and Negative amount should be indicated by a minus sign.) Cash Paid on Purchase Recovery Deduction Tax Savings Net Cash Flow Present Value at at 21% 10% Year 0 Year 1 Year 2 Year 3 NPV of after-tax cost $ 0 Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req A3 Reg B Which option (keep old or buy new) minimizes MG's after-tax cost? Buy new equipment OKeep old equipment Complete this question by entering your answers in the tabs below. Req A1 Req A2 Req A3 Req B Assume MG can make a Section 179 election to expense the entire $5,000 cost of the new equipment. Under this change in facts, which option (keep old or buy new) minimizes MG's after-tax cost? O Buy new equipment OKeep old equipment