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    Cushing Corporation is considering the purchase of a new gra

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    Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cast of $20,000; it was being depreciated under MACRS using a 5-years recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentage.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,000 in installation costs; it will be depreciated using a 5-years recovery period under MACRS. The existing machine can currently be sold for $25,000 without incurring any removal or cleanup costs. The firm pays 40% taxes on both ordinary income and capital gains. Calculate the initial investment associated with the proposed purchase of new grading machine.

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    Solution Preview

    Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cast of $20,000; it was being depreciated under MACRS using a 5-years recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentage.) The existing machine is expected to ...

    Solution Summary

    Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cast of $20,000; it was being depreciated under MACRS using a 5-years recovery period. (See Table 3.2 on page 100 for the applicable depreciation percentage.) The existing machine is expected to have a usable life of at least 5 more years. The new machine costs $35,000 and requires $5,000 in installation costs; it will be depreciated using a 5-years recovery period under MACRS. The existing machine can currently be sold for $25,000 without incurring any removal or cleanup costs. The firm pays 40% taxes on both ordinary income and capital gains. Calculate the initial investment associated with the proposed purchase of new grading machine.

    $2.19

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