Unformatted text preview: efficient pieces of equipment. The existing hoist is 3 years old, cost $32,000, and is being depreciated
under MACRS using a 5-year recovery period. Although the existing hoist has
only 3 years (years 4, 5, and 6) of depreciation remaining under MACRS, it has
a remaining usable life of 5 years. Hoist A, one of the two possible replacement
hoists, costs $40,000 to purchase and $8,000 to install. It has a 5-year usable life
and will be depreciated under MACRS using a 5-year recovery period. The other
hoist, B, costs $54,000 to purchase and $6,000 to install. It also has a 5-year
usable life and will be depreciated under MACRS using a 5-year recovery period.
Increased investments in net working capital will accompany the decision to
acquire hoist A or hoist B. Purchase of hoist A would result in a $4,000 increase
in net working capital; hoist B would result in a $6,000 increase in net working
capital. The projected profits before depreciation and taxes with each alternative
hoist and the existing hoist are given in the following table.
depreciation and tax...
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