Hercules Exercise Equipment Company purchased a computerized measuring device two years ago for $66,000. The equipment falls into the five-year category for MACRS depreciation and can currently be sold for $28,800. A new piece of equipment will cost $156,000. It also falls into the five-year category for MACRS depreciation. Assume the new equipment would provide the following stream of added cost savings for the next six years. Use Table 12–12. Use Appendix B for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year Cash Savings 1 $ 66,000 2 58,000 3 56,000 4 54,000 5 51,000 6 40,000 The firm’s tax rate is 25 percent and the cost of capital is 9 percent. What is the tax benefit from the sale? What is the tax benefit from the sale?
