14.

MACRS schedule

15.

A proposed cost-saving device has an installed cost of $760,000. The device will be used in a five-year project but is classified as three-year MACRS property for tax purposes. The required initial net working capital investment is $65,000, the marginal tax rate is 25 percent, and the project discount rate is 8 percent. The device has an estimated Year 5 salvage value of $100,000. What level of pretax cost savings do we require for this project to be profitable? MACRS schedule (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Pretax cost savings Property Class Three-Year 33.33% 44.45 14.81 7.41 Seven-Year 14.29% 24.49 17.49 12.49 8.93 8.92 8.93 4.46 Year Five-Year 2 3 4 5 6 7 20.00% 32.00 19.20 11.52 11.52 5.76 Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,940,000; the new one will cost, $2,465,000. The new machine will be depreciated straight-line to zero over its five-year lfe t will probably be worth about $645,000 after five years. The old computer is being depreciated at a rate of $464,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $675,000; in two years, it will probably be worth $201,000. The new machine will save us $413,000 per year in operating costs. The tax rate is 24 percent, and the discount rate is 9 percent. a-1. Calculate the EAC for the the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a-2. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a-1. Old computer EAC New computer EAC a-2. NPV