Net investment
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Felix Industries purchased a grinder 5 years ago for $15,000. It is being depreciated on a straight-line basis over 15 years to an estimated salvage value of zero. It could be sold now for $6,000. The firm is considering selling it and purchasing a new one. The new grinder would cost $25,000 installed and would be depreciated on a straight-line basis over 10 years to a zero estimated salvage value. The company's marginal tax rate is 40%. Determine the net investment if the old grinder is sold and the new one purchased.
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Solution Summary
The solution explains how to calculate the net investment in a replacement decision
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The net investment = Purchase price of new grinder - the after tax salvage value of old grinder
The cost of new grinder = 25,000
The ...
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