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A firm is trying to determine the cash flow from selling an old computer system to...

A firm is trying to determine the cash flow from selling an old computer system to an interested buyer. The computer system was purchased five years ago for $439,627.00. The system was depreciated using the 7-year MACRS schedule. The firm has an offer this morning for $72,023.00. The tax rate facing the firm is 35.00%. The firm will only accept the offer if it generates a cash flow greater than $60,313.00.

A) What is the current book value of the computer system?

B) What is the NSV from selling the computer system today?

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Answer #1

A:

Book value 98080.78

B:

Selling price 72023
Loss 26057.78
Tax savings 9120.224
NSV=Selling price+Tax savings 81143.22

Workings

Purchase price 439627
Rate used Less: Depreciation= Purchase price*Depreciation rate
14.29% Year 1 62822.7
24.49% 2 107664.7
17.49% 3 76890.76
12.49% 4 54909.41
8.93% 5 39258.69
Book value 98080.78
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