Question Help P11-14 (similar to) Calculating initial investment DuPree Coffee R

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Question Help P11-14 (similar to) 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 $138,000. The firm has a chance to sell its 3-year-old roaster for $34,100. The existing roaster originally cost $59,500 and was being depreciated using MACRS and a 7-year recovery period see the table?). DuPree pays taxes at a rate of 40% on ordinary income and capital gains. 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 following figures Anticipated Changes in Current Assets and Current Liabilities Data Table - $19,000 +51,000 +40,300 +70,900 Accruals Accounts payable Accounts receivable Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) a. The remaining book value of the existing roaster is S Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* 7 years 14% 25% 18% 12% 10 years 10% 18% 14% 12% 5 years 3 years 33% 45% 15% Recovery year 19% 12% 12% 5% 3% 8% 49% 6% 6% 4% 100% 10 Enter your answer in the answer box and then click Ch 100% 100% Totals 100%

Explanation / Answer

a. Book value of the existing roaster will be = cost price - depreciation already charged
= Cost price * depreciation need to be charged after 3rd year (calculated by the depreciation rate's after the sale i.e., after 3rd year)
That means, Book value = $59,500 * (12% + 9% + 9% + 4%)
= $59,500 * 43% = $25,585

b. The after-tax proceeds of the sale of the existing roaster = Sales price of old roaster - tax on profit generated from the sale
Here, tax on profit generated from the sale = (Sales price of old roaster- Book value of old roaster )* tax rate= (34,100 - 25,585)*40% = 8,515*40% = $3,406
Therefore, after-tax proceeds of the sale of the existing roaster = 34,100 - 3,406 = $30,694

c. Changes in net working capital = Changes in current assets - Changes in current liabilities
= (inventory + accounts receivable) - (Accruals + accounts payable)
= (51,000+ 70,900) - (-19,000+40,300)
= 121,900 - 21,300 = 100,600

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