Miller Dental, Inc. is considering replacing its existing laser checking system, which was purchased 3 years ago at a cost of $568,000. The laser checking system can be sold for a lump sum of $253,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2, page 166). 

Table 4.2:

A new laser checking system will cost $870,000 to purchase and install. Replacement of the planned laser checking system would not involve any change in net working capital. Assuming a 20% tax rate, calculate the following:
a. The book value of the existing laser checking system.
b. The after-tax proceeds of its sale for $253,000.
c. The initial investment associated with the replacement project.

Transcribed Image Text:

TABLE 4.2 Recovery year 1 2 3 4 56700 8 9 10 11 Totals Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes 3 years 33% 45 15 7 100% Percentage by recovery year" 5 years 7 years 20% 14% 25 18 12 32 19 225 12 12 100% 9 9 9 100% 10 years 10% 18. 14 12 9 8 7 6 6 6 100%