2. A private radiology clinic is considering replacing a chest X-ray machine. The existing machine was bought 8 years ago at an installed cost of $36,000, and this installed cost was being depreciated using the prime cost method assuming an effective life of 10 years. A new replacement X-ray machine costs $65,000 fully installed. The existing X-ray machine can currently be sold for $5,000 without incurring any removal costs. The firm pays 30% taxes on both ordinary income and capital gains. An increase in working capital of $2,000 would be required if a replacement X-ray machine is purchased. Calculate the initial investment associated with the proposed purchase of a replacement X-ray machine.
Thanks in advance
+118651 I don't really know but I can discuss some things with you.
$$\boxed{Annual\;Prime\;Cost\;Depreciation=\frac{original\;value-salvage\;value}{estimated\; annual\; life}}$$
I'll assume that the salvage value was estimated at 0
so yearly depreciation is 36000/10 = $3600
2 years worth of depreciation can still be claimed, this is 3600*2=$7200
cost = cost of new machine - sale of old one - depreciation still owing.
cost = 65000 - 5000 - 7200 = $52800
As for all that other stuff, I am not sure that any of it is relevant. 
Thanks for your help.
Yeah I was really confused aswell, once I get the answer back from my teacher I'll post it.
+118651 Thanks, I'd like that. If you were a member you could send me the address of your post. 
+12 Sorry for the late response, been busy with mid-semester exams.
Heres the official answer, hope it helps.
Book value of existing X-ray machine
= $7200
Book loss on sale of existing X-ray machine
= 7,200 - 5000 = $2,200
Tax shield from book loss on sale of existing X-ray machine
= 0.3(2,200) = $660
Hence:
After-tax proceeds from sale of old asset
= 5,000 + 660 = $5,660
Initial Investment
= 65,000 – 5,660 + 2,000 = $61,340
