Initial investment Basic calculation Cushing Corporation is considering the purc

Question

Initial investment Basic calculation Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 4 years ago at an installed cost of $19,200; as being depreciated under MACRS using a 5-year recovery period. See table?for the applicable depreciation percentages. The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,300 in installation costs; it will be depreciated using a 5-year recovery period under MACRS. The existing machine can currently be sold for S24,300 without incurring any removal or cleanup costs. The firm is subject to a 40% tax rate. Calculate the initial investment associated with the proposed purchase of a new grading machine. Data Table (Click on the icon located on the top-right coner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes ntage by recovery year* 7 ycars 14% 25% 18% 12% 9% 3% 9% 10 years 10% 18% 14% 12% 9% 8% 5 ycars 3 years 33% Recovery year 19% 12% 12% 5% 15% 5% 6% 6% 4% 100% 10 100% 100% 100% Totals

Explanation / Answer

Statement showing Book value of old machine

Statement showing salvage value

Statement showing initial investment

Year Opening balance Depreciation rate Depreciation( 19200* Depreciation rate) Closing balance 1 19200 20% 3840 15360 2 15360 32% 6144 9216 3 9216 19% 3648 5568 4 5568 12% 2304 3264

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