Question

Edwards Manufacturing Company​ (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $ 10000. The firm is depreciating the machine under​ MACRS, using a​ 5-year recovery period.​ The new machine costs $ 24400 and requires $ 1960 in installation costs. The firm is subject to a 40 % tax rate. In each of the following​ cases, calculate the initial investment for the replacement.

a. EMC sells the old machine for $ 11200.

b. EMC sells the old machine for $6920.

c. EMC sells the old machine for $ 2900.

d. EMC sells the old machine for $ 1520.

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes              
   Percentage by recovery year*          
Recovery year    3 years    5 years    7 years    10 years
1    33%   20%   14%   10%
2    45%   32%   25%   18%
3    15%   19%   18%   14%
4    7%   12%   12%   12%
5        12%   9%   9%
6        5%   9%   8%
7            9%   7%
8            4%   6%
9                6%
10                6%
11                4%
Totals   100%   100%   100%   100%
              

Answer 1

in the above question option C is correct that EMC sells the old machine for $ 2900 Because

on the old machine depreciation will be charged till date will be 71% (20%+32%+19%)

therefore sell amount = $10000-71% of $10000

= $2900

On the other hand initial investment that will be require is equal to

$New Machine cost + Installation cost - Sell amount of old Machine$

$= \$24400+ \$1960 - \$2900$

$= \$23460$

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

Do give Thumbs up if you find this helpful.

Answer 2

Your answer is totally wrong for this question