Initial Investment

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 Initial Investment

P11-11. Calculating initial investment

LG 3, 4; Intermediate
a. Book value  $325,000  (1 0.20 – 0.32)  $325,000  0.48  $156,000
b. Sales price of old equipment $200,000
Book value of old equipment 156,000
Recapture of depreciation $ 44,000
Taxes on recapture of depreciation  $44,000  0.40  $17,600
After-tax proceeds  $200,000  $17,600  $182,400
c. Cost of new machine $ 500,000
Less sales price of old machine (200,000)
Plus tax on recapture of depreciation 17,600
Initial investment $ 317,600

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