solution

Calculating initial investment DuPree Coffee Roasters Inc. wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to sell its 4-year-old roaster for $35,000. The existing roaster originally cost $60,000 and was being depreciated using MACRS and a 7-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) DuPree is subject to a 21% tax rate.

a. What is the book value of the existing roaster?

b. Calculate the after-tax proceeds of the sale of the existing roaster.

c. Calculate the change in net working capital using the figures in the following table.

d. Calculate the initial investment associated with the new roaster.

 
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