Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

3 5 0.67 of 8 pts hilar to) Question Help 2 Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that

image text in transcribed
image text in transcribed
3 5 0.67 of 8 pts hilar to) Question Help 2 Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $194,000 and will require $29,900 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $23,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of 4 years to net $14,400 before taxes; the new machine at the end of 4 years will be worth $72,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 40% tax rate. 6 The terminal cash flow for the replacement decision is shown below: (Round to the nearest dollar) Proceeds from sale of new machine Tax on sale of new machine Total after-tax proceeds-new asset Proceeds from sale of old machine Tax on sale of old machine 10 Total after-tax proceeds-old asset Change in net working capital Terminal cash flow 7 $ 9 Sin Enter any number in the edit fields and then click Check Answer. All martechawin Clear All 1 Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100% "These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention 9% En Print Done

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Foundations Of Financial Markets And Institutions

Authors: Franco Modigliani, Frank J. Jones, Michael G. Ferri, Frank J. Fabozzi

3rd Edition

0130180793, 978-0130180797

More Books

Students also viewed these Finance questions