Existing piece of equipment with more sophisticated machine

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Reference no: EM131940045

The Robinson Corporation, a manufacturer of mobile phone cases, is considering replacing an existing piece of equipment with a more sophisticated machine. The following information is given.

Facts

Existing Machine ----------------------------------------------Proposed Machine

Cost = $200,000 -------------------------------------------------Cost = $250,000

Purchased 2 years ago -----------------------------------------Installation = $25,000

Depreciation using MACRS over a 5-year ------------------Depreciation using MACRS over a 5-year

recover schedule ----------------------------------------------------recover schedule will be used

Current market value = $210,000

Five year usable life remaining -----------------------------------Five year usable life expected

5 year depreciation percentages: 20, 32, 19, 12, 12, 5.

Earnings before Depreciation and Taxes

Existing Machine -------------------------------------Proposed Machine

Year 1 $250,000 -----------------------------------------Year 1 $200,000

-------2 180,000 --------------------------------------------------2 200,000

-------3 150,000 --------------------------------------------------3 200,000

-------4 150,000 --------------------------------------------------4 200,000

-------5 150,000 --------------------------------------------------5 200,000

The firm pays 40 percent taxes on ordinary income and capital gains.

Given the information in the table above, compute the initial investment.

The -- marks are used as seperators

Reference no: EM131940045

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