Hercules Exercise Equipment Co. purchased a computerized measuring device two years ago for $58,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $24,800. A new piece of equipment will cost $148,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 1212. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 6 Cash Savings $ 62,000 54,000 52,000 50.000 47,000 36.000 The firm's tax rate is 35 percent and the cost of capital is 12 percent. a. What is the book value of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Book value $ 27,840 b. What is the tax loss on the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete and correct. Tax loss $ 3,040 c. What is the tax benefit from the sale? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Tax benefit $ 760 X d. What is the cash inflow from the sale of the old equipment? (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Cash inflow 25,560 X e. What is the net cost of the new equipment? (Include the inflow from the sale of the old equipment.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Net cost 127,950 X f. Determine the depreciation schedule for the new equipment. (Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year 1 2 Answer is complete but not entirely correct. Depreciation Percentage Annual Base Depreciation Depreciation $ 150,000 X 0.200$ 30,000 $ 150,000 X 0.320 48,000 X 150,000 X 0.192 28,800 X 150.000 X 0.115 17,250 X 150,000 X 0.115 17,250 X 150,000 X 0.058 8.700 X $ 150,000 3 4 5 6 g. Determine the depreciation schedule for the remaining years of the old equipment.(Round the depreciation base and annual depreciation answers to the nearest whole dollar. Round the percentage depreciation factors to 3 decimal places.) Year Base 1 Answer is complete but not entirely correct. Depreciation Percentage Annual Depreciation Depreciation $ 60,000 X 0.192$ 11,520 X 60,000 X 0.115 6.900 X 60,000 0.115 6,900 X 60.000 X 0.058 3,480 X 2 3 4 h. Determine the incremental depreciation between the old and new equipment and the related tax shield benefits. (Enter the tax rate as a decimal rounded to 2 decimal places. Round all other answers to the nearest whole dollar.) Year 1 Answer is complete but not entirely correct. Depreciation Depreciation Incremental Tax Shield on New on Old Tax Rate Equipment Benefits Equipment Depreciation $ 30,000 X $ 11,520 X $ 18,480 35,00 X $ 6,468 48,000 X 6,900 X 41,100 X 35.00 X 14,385 X 28,800 X 6,900 X 21,900 X 35.00 7,665 X 17,250 X 3,480 X 13.770 X 35.00 X 4,820 X 17,250 X 0 17,250 X 35.00 % 6,038 % 8,700 X 8,700 X 35.00 X 3,045 X 2 3 4 5 6 i. Compute the aftertax benefits of the cost savings. (Enter the aftertax factor as a decimal rounded to 2 decimal places. Round all othe Year 1 $ 2 3 Answer is complete but not entirely correct. Savings (1 - Tax Aftertax Rate) Savings 62,000 0.65 $ 40,300 54,000 0.70 35,100 52,000 0.65 33,800 50,000 0.65 32,500 47000 0.65 30,550 36000 0.65 23,400 3 4 5 6 j-1. Add the depreciation tax shield benefits and the aftertax cost savings to determine the total annual benefits. (Do not round intermediate to the nearest whole dollar.) Year 1 Answer is complete but not entirely correct. Tax Shield Benefits Aftertax Total Annual from Cost Benefits Depreciation Savings 6,468 37,050 $ 43,518 14,385 X 31,850 46,235 7,665 30,550 X 38,215 4,820 X 29,250 34,070 6,038 X 27,300 33,338 % 3,045 20,150 23,195 2 4 01 6 j-2. Compute the present value of the total annual benefits. (Do not round intermediate calculations and round your answer to the near Answer is complete but not entirely correct. Total annual benefits $ 155,250 k-1. Compare the present value of the incremental benefits (1) to the net cost of the new equipment (e) (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round your answer to the nearest whole dollar.) Answer is complete but not entirely correct. Net present value $ 27,300 X