Hercules Exercising Equipment Company purchased a computerized measuring device two years ago for $60,000.

Hercules Exercising Equipment Company purchased a computerized measuring device two years ago for $60,000. The equipment falls into the five year category for MACRS depreciation and can currently be sold for $23,800. A new piece of equipment will cost $150,000. It also falls into the five year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years.

Year      Cost savings

1            $57,000

2            $49,000

3            $47,000

4            $45,000

5            $42,000

6            $31,000

The tax rate is 35% and the cost of capital is 12%.

a.           What is the book value of the old equipment

b.           What is the tax loss on the sale of the old equipment

c.           What is the tax benefit from the sale

d.           What is the cash inflow from the sale of the old equipment

e.           What is the net cost of the new equipment (include the inflow from the sale of the old equipment

f.           Determine the depreciation schedule for the new equipment

g.           Determine the depreciation schedule for the remaining years of the old schedule

h.           Determine the incremental depreciation schedule between the old and new equipment and the