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Vastine Medical, Inc is considering replacing its existing computer system, which was purchased 2 years ago at a cost of $325,000. The system can be sold today for $200,000. It is being depreciated using MACRS and a five year recovery period. (See Table 3.2 page 108) I am sending the table separately. A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 40% tax rate.

a. Calculate the book value of the existing computer system

b. B. Calculate the after tax proceeds of its sales for $200,000

c. Calculate the initial investment associated with the replacement project

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