Edwards Manufacturing Company is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using 5-year recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentage.) The new machine cost $24,000 and requires $2,000 in installation cost. The firm is subject to a 40% tax rate on both ordinary income and capital gains. In each of the following cases, calculate the initial investment for the replacement.;a. EMC sells the old machine for $11,000.;b. EMC sells the old machine for $7,000.;c. EMC sells the old machine for $2,900.;d. EMC sells the old machine for $1,500.
Calculate the Initial Investment for a Replacement Machine
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