Computer Disk Duplicators, Inc. has been considering several capital investment proposals for the year beginning in 2019. For each investment proposal, the relevant cash flows and other relevant financial data are summarized in the table below. New assets will be depreciated under the MACRS system rather than being fully expensed right away. In the case of a replacement decision, the total installed cost of the equipment will be partially offset by the sale of existing equipment. The firm is subject to a 40 percent tax rate on ordinary income and on long-term capital gains. The firm's cost of capital is 15 percent. Type of Capital Budgeting Decision Type of Project Proposal 1 2 Mutually Exclusive Expansion Replacement Independent with 3 $200,000 3 Replacement Mutually Exclusive *Not applicable For Proposal 3, the incremental depreciation expense for year 3 is, with 2 Cost of new asset $1,500,000 $300,000 Installation costs $0 $0 $15,000 MACRS (new asset) 10 years 5 years Original cost of old asset N/A* $80,000 5 years $100,000 Purchase date (old asset) N/A 1/1/2015 Sale proceeds (old asset) N/A $50,000 1/1/2018 $120,000 MACRS (old asset) N/A 5 years 5 years Annual net profits before depreciation & taxes (old) N/A $30,000 $25,000 Annual net profits before depreciation & taxes (new) $250,000 $100,000 $175,000