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Unformatted text preview: 8-21. IntegrativeDetermining Relevant Cash Flows for Replacement Decisiona.Initial investment:Installed cost of new asset=Cost of new asset$105,000+Installation costs5,000Total cost of new asset$110,000-After-tax proceeds from sale of old asset=Proceeds from sale of old asset(70,000)+Tax on sale of old asset*16,480Total proceeds from sale of old asset(53,520)+Change in working capital12,000Initial investment$68,480*Book value of old asset:[1 - (.20 + .32)] x $60,000=$28,800$70,000 - $28,800=$41,200 gain on sale of asset$31,200 recaptured depreciation x .40=$12,480$10,000 capital gain x .40=4,000Total tax of sale of asset=$16,480b.CALCULATIONOFOPERATINGCASHINFLOWSProfits BeforeOperatingDepreciationDepre-Net ProfitsNet ProfitsCashYearand TaxesciationBefore TaxesTaxesAfter TaxesInflowsNew Grinder1$43,000$22,000$21,000$ 8,400$12,600$34,600243,00035,2007,8003,1204,68039,880343,00020,90022,1008,84013,26034,160443,00013,20029,80011,92017,88031,080543,00013,20029,80011,92017,88031,0806--0-5,500...
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This note was uploaded on 02/29/2012 for the course BUS 332 taught by Professor Johnzietlow during the Spring '12 term at Malone University.
- Spring '12