Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $321,000 . The system can be sold today for $194,000. It is being depreciated using MACRS and a 5-year recovery period (see the table LOADING...). A new computer system will cost $508,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $194,000. c. Calculate the initial investment associated with the replacement project.

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02-12-2022
Business

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Calculating initial investment Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $321,000 . The system can be sold today for $194,000. It is being depreciated using MACRS and a 5-year recovery period (see the table LOADING...). A new computer system will cost $508,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate on ordinary income and capital gains. a. Calculate the book value of the existing computer system. b. Calculate the after-tax proceeds of its sale for $194,000. c. Calculate the initial investment associated with the replacement project.

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