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Unformatted text preview: n Enterprises is considering the
purchase of a new piece of equipment to replace the current equipment. The new
equipment costs $75,000 and requires $5,000 in installation costs. It will be
depreciated under MACRS using a 5-year recovery period. The old piece of
equipment was purchased 4 years ago for an installed cost of $50,000; it was
being depreciated under MACRS using a 5-year recovery period. The old equipment can be sold today for $55,000 net of any removal or cleanup costs. As a
result of the proposed replacement, the firm’s investment in net working capital
is expected to increase by $15,000. The firm pays taxes at a rate of 40% on both 380 PART 3 Long-Term Investment Decisions ordinary income and capital gains. (Table 3.2 on page 100 contains the applicable MACRS depreciation percentages.)
a. Calculate the book value of the old piece of equipment.
b. Determine the taxes, if any, attributable to the sale of the old equipment.
c. Find the initial investment associated with the prop...
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- Fall '13