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