# Calculating the net initial investment

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.