Let us first calculate the investments needed.
INVESTMENT:
Purchase price                                                                     Â
680,000
Less, sale price of old machines                                         ( 240,000)
Original price of old machines 590,000
Depreciation                             114000
Book value = 590000 – 114000 = 476000
Sale
price =Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â
240,000
Loss = 476000 – 240000 = 236,000
Tax savings due to 46% of loss = 0.46 * 236,000
=Â Â Â Â Â Â Â Â Â Â Â Â Â (108560)Â Â Â Â Â Â
Investment tax credit = 10% of 680,000Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â ( 68000)
                                  Â
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                                    Net
investments                          263440
