Calculating initial investmentÂ Miller Dental Inc. is considering replacing its laser checking system, which was purchased 3 years ago at a cost of $568,000. The system can be sold today for $253,000. It is being depreciated using MACRS and a 5-year recovery period (see Table 4.2). A new laser checking system will cost $870,000 to purchase and install. Replacement of the laser checking system would not involve any change in net working capital. Assume a 20% tax rate.
a. Calculate the book value of the existing laser checking system.
b. Calculate the after-tax proceeds of its sale for $253,000.
c. Calculate the initial investment associated with the replacement project.