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Please show formulas P1111 Calculating initial investmentVastine Medical, Inc., is considering...

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Accounting

Please show formulas

P1111 Calculating initial investmentVastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2, page 120.) A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

Calculate the book value of the existing computer system.

Calculate the after-tax proceeds of its sale for $200,000.

Calculate the initial investment associated with the replacement project.

PROBLEM 11-11

a.

Book Value =

b.

After-tax proceeds:

Sales price of old equipment

Book value of old equipment

Recapture of depreciation

Taxes on recapture of depreciation

After-tax proceeds

c.

Initial investment:

Cost of new machine

Less: Sales price of old machine

Plus: Tax on recapture of depreciation

Initial investment

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