Question: Aleppo Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of US$325,000. The system can be

Aleppo Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of US$325,000. The system can be sold today for US$200,000. It is being depreciated using the straight-line method down to zero over 5 years. A new computer system will cost US$500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40 percent tax rate.
a. Calculate the book value of the existing computer system.
b. Calculate the after-tax proceeds of its sale for US$200,000.
c. Calculate the initial investment associated with the replacement project.

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