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* Problem P8-12, p. 410  
* Problem P8-17, p. 411
* Problem P9-20, p. 450
* Problem P9-25, p. 452
* Problem P10-3, p. 487
* Problem P10-8, p. 489  
* Problem P10-19, p. 495

* Problem P8-12, p. 410  
Calculating initial investment. Vastine Medical, Inc., is considering replacing its existing computer system, which was purchased 2 years ago at a cost of$325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and 5-year recovery periods (see Table 3.2, page 108). 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 40% tax rate.
a. Calculate the book value of the existing computer system.
b. Calculatethe after-tax proceeds of its sale for $200,000.
c. Calculate the initial investment associated with the replacement project.

(a) Book value = ($325,000 × 0.48) = $156,000
(b) Sales price of old equipment $200,000
Book value of old equipment 156,000
Recapture of depreciation $44,000
Taxes on recapture of depreciation = $44,000 × 0.40 = $17,600
After-tax proceeds = $200,000 −$17,600 = $182,400
(c) Cost of new machine $500,000
Less sales price of old machine (200,000)
Plus tax on recapture of depreciation 17,600
Initial investment $317,600
* Problem P8-17, p. 411
Incremental operating cash inflows. A firm is considering renewing its equipment to meet increased demand for its product. The cost of equipment modifications is $1.9 million plus $100,000 ininstallation costs. The firm will depreciate the equipment modifications under MACRS, using a 5-year recovery period (See Table 3.2 on page 108 for the applicable depreciation percentages.) Additional sales revenue from the renewal should amount to $1.2 million per year, and additional operating expenses and others cost (excluding depreciation and interest) will amount to 40% of the additional sales.The firm is subject to a tax rate 40%. (Note: Answer the following question for each of the next 6 years.)
a. What incremental earnings before depreciation, interest, and taxes will result from the renewal?
b. What incremental net operating profits after taxes will result from the renewal?
c. What incremental operating cash inflows will result from the renewal?

a) Incrementalprofits before tax and depreciation = $1,200,000 − $480,000= $720,000 each year
b)
Year | (1) | (2) | (3) | (4) | (5) | (6) |
PBDT | $720,000 | $720,000 | $720,000 | $720,000 | $720,000 | $720,000 |
Depr. | 400,000 | 640,000 | 380,000 | 240,000 | 240,000 | 100,000 |
NPBT | 320,000 | 80,000 | 340,000 | 480,000 | 480,000 | 620,000 |
Tax | 128,000 | 32,000 | 136,000 |192,000 | 192,000 | 248,000 |
NPAT | 192,000 | 48,000 | 204,000 | 288,000 | 288,000 | 372,000 |

c) Cash (1) (2) (3) (4) (5) (6)
flow $592,000 $688,000 $584,000 $528,000 $528,000 $472,000
(NPAT + depreciation)
PBDT = Profits before depreciation and taxes
NPBT = Net profits before taxes
NPAT = Net profits after taxes
* Problem P9-20, p. 450
Payback, NPV, and IRR. RiegerInternational is attempting to evaluate the feasibility of investing $95,000 in a piece of equipment that has a 5-year life. The firm has estimated the cash inflows associated with proposal as shown in the table at the right. The firm has a 12% cost of capital.
a. Calculated the payback period for the proposed investment.
b. Calculated the net present value (NPV) for the proposedinvestment.
c. Calculated the internal rate of return (IRR), rounded o the nearest whole percent, for the proposed investment.

d. Evaluate the acceptability of the proposed investment using NVP and IRR. What recommendation would you make relative to implementation of the project? Why?
Year (t) | Cash inflows (CFt) |
1 | $20,000 |
2 | 25,000 |
3 | 30,000 |
4 | 35,000 |
5 | 40,000 |...
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