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# Calculating the net initial investment

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A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost \$30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for \$25,000. The new asset will cost \$75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is:
A) \$42,000.
B) \$52,440.
C) \$54,240.
D) \$50,000.

14. Compute the initial purchase price for an asset with book value of \$34,800 and total accumulated depreciation of \$85,200.

15. A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost \$70,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for \$30,000. The new asset will cost \$80,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is
A) \$48,560.
B) \$44,360.
C) \$49,240.
D) \$27,600.

#### Solution Preview

13. A corporation has decided to replace an existing asset with a newer model. Two years ago, the existing asset originally cost \$30,000 and was being depreciated under MACRS using a five-year recovery period. The existing asset can be sold for \$25,000. The new asset will cost \$75,000 and will also be depreciated under MACRS using a five-year recovery period. If the assumed tax rate is 40 percent on ordinary income and capital gains, the initial investment is

Depreciation rate for year 1=20%
Depreciation rate for year 1=32%
Accumulated ...

#### Solution Summary

The solution depict the steps to estimate the initial investments in the given cases.

\$2.19