Question 1 . Vastine Medical Inc. is replacing its computer system, which was purchased two years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a five-year recovery period. A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 21% tax rate.

A. Calculate the book value of the existing computer system using table below

B. Calculate the after-tax proceeds of its sale for $200,000.

C. Calculate the initial cash flow associated with the replacement project.

Table 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes