A machine costs $158,000 and requires $19,800 in installation costs. Purchasing this machine is expected to lead to an increase in net working capital of $30,200 to support other operations. Firm plans to depreciate the machine under MACRS using 5-year recovery period (depreciation percentages shown in rable below) and expects to sell the machine to net $10,300 before taxes at the end of its usable life. Firm subject to 40% tax rate.

A.) Calculate terminal cash flow for a useable life of (1) 3 years , (2) 5 years , (3) 7 years

B.) Discuss effect of usable life on terminal cash flows using your findings in part a.

C.) Assuming 5-year usable life calculate terminal cash flow if machine were sold to net (1) $8,890 or (2) $170,000 (before taxes) at the end of 5 years.

D.) Discuss the effect of sale price on terminal cash flow using your findings in part c.

9% Percentage by recovery year Recovery year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 6 5% 9% 8% 7 9% 7% 8 4% 9 6% 10 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while 6%