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P11-13 Initial investment at various sale pricesEdwards Manufacturing Company (EMC) is considering replacing one machine with another.
P11-13 Initial investment at various sale prices Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. (See Table 4.2 on page 120 for the applicable depreciation percentages.) The new machine costs $24,000 and requires $2,000 in installation costs. The firm is subject to a 40% tax rate. In each of the following cases, calculate the initial investment for the replacement.
- EMC sells the old machine for $11,000.
- EMC sells the old machine for $7,000.
- EMC sells the old machine for $2,900.
- EMC sells the old machine for $1,500.
