You have been hired by Egon Spengler, Peter Venkman, and Ray Stantz to help them with NPV analysis for a replacement project. These three New York City parapsychologists need to replace their existing supernatural beings detector with the new, upgraded model. They have calculated all the necessary figures but are unsure about how to account for the sale of their old machine. The original depreciation basis of the old machine is $20,000, and the accumulated depreciation is $12,000 at the date of the sale. They can sell the old machine for $18,000 cash. Assume the tax rate for their company is 30 percent.

a. What is the book value of the old machine?

b. What is the taxable gain (loss) on the sale of the old equipment?

c. Calculate the tax on the gain (loss).

d. What is the net cash flow from the sale of the old equipment? Is this a cash inflow or an outflow?

e. Assume the new equipment costs $40,000 and they do not expect a change in net working capital. Calculate the incremental cash flow for t₀.

f. Assume they could only sell the old equipment for $6,000 cash. Recalculate parts b through e.