Sigma Gama is considering replacing the existing machine with a more efficient machine. The new machine costs $$111499$ and requires $$9039$ in installation costs. The old machine was purchased $2$ years ago for an installed cost of $$28172$ and can be sold for $$40689$ net of any removal costs today. Both machines are depreciated under the MACRS $5-$year recovery schedule. The firm is in $40$ percent marginal tax rate. Calculate the initial investment required for the new machine.

Note: use one decimal place. Insert numbers only. Refer to the MACRS table in the slides.

Answer:

Alpha Beta Company, Inc., a manufacturer of toys, is considering replacing an existing piece of equipment with a more sophisticated machine. The firm pays $40$ percent taxes on ordinary income and capital gains. Given the following information, calculate the initial investment required for the new asset.

Existing Machine

Cost $=20077$

Purchased $2$ years ago

Depreciation using the straight$-$line method $(20\%$ depreciation each year$)$

Useful life $=5$ years

Current market value $=34607$

Annual cash flows $=$$$10,000$

Proposed$/$new Machine

Cost $=86192$

Installation $=18108$

Depreciation using the straight$-$line method $(20\%$ depreciation each year$)$

Useful life $=5$ years

Annual cash flows $=$$$20,000$

Note: Use one decimal place. Insert numbers only.

Answer: