Seduck has just replaced a set of hydraulic screens that had been in operation for 6 years with a newer screening system that cost $180,000 installed. The old system cost $140,000 and had been depreciated as a 10-year MACRS asset. Its salvage value is $10,000. What is the NINV for the new equipment? Assume a 40% tax rate. Use the rounded MACRS schedule listed below:
(10-Year Depreciation Schedule: 10%, 18%, 14%, 12%, 9%, 7%, 7%, 7%, 7%, 6%, 3%)

Question

Seduck has just replaced a set of hydraulic screens that had been in operation for 6 years with a newer screening system that cost $180,000 installed. The old system cost $140,000 and had been depreciated as a 10-year MACRS asset. Its salvage value is $10,000. What is the NINV for the new equipment? Assume a 40% tax rate. Use the rounded MACRS schedule listed below: 
(10-Year Depreciation Schedule: 10%, 18%, 14%, 12%, 9%, 7%, 7%, 7%, 7%, 6%, 3%)

Quizplus · Accepted Answer

The NINV (Net Investment Value) is calculated by considering the cost of the new equipment, the after-tax salvage value of the old equipment, and the tax shield from the remaining book value of the old equipment. The old equipment's book value after 6 years is calculated using the MACRS schedule. The tax shield and after-tax salvage value are subtracted from the cost of the new equipment to find the NINV.

Seduck Has Just Replaced a Set of Hydraulic Screens That