Rough & Tumble Clothiers is considering the purchase of a new loom to replace a less efficient one. The new machine will cost $240,000 including installation. The machine being replaced was purchased 5 years ago for $150,000 and is being depreciated as a 7-year MACRS property. It can be sold for $40,000. Compute the NINV for this project if KC has a marginal tax rate of 40%. Use the rounded MACRS schedule listed below:
(7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)

Question

Rough & Tumble Clothiers is considering the purchase of a new loom to replace a less efficient one. The new machine will cost $240,000 including installation. The machine being replaced was purchased 5 years ago for $150,000 and is being depreciated as a 7-year MACRS property. It can be sold for $40,000. Compute the NINV for this project if KC has a marginal tax rate of 40%. Use the rounded MACRS schedule listed below: 
(7-Year Depreciation Schedule: 14%, 25%, 18%, 12%, 9%, 9%, 9%, 4%)

Quizplus · Accepted Answer

The Net Initial Investment (NINV) is calculated by considering the cost of the new machine, the after-tax salvage value of the old machine, and the tax effects of the sale. The old machine's book value is calculated using the MACRS schedule, and the tax on the sale is determined by the difference between the sale price and the book value. The NINV is the cost of the new machine minus the after-tax salvage value of the old machine.

Rough & Tumble Clothiers Is Considering the Purchase of a New