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Click to see additional instructions Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a
Click to see additional instructions 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 $30,400 in installation costs. It will be depreciated under MACRS using a 5-year recovery period for the applicable depreciation percentages). A 526,000 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 $16,800 before taxes; the new machine at the end of 4 years will be worth $75,000 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 2196 tax rate. (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 Total after-tax proceeds-old asset Change in net working capital Terminal cash flow MACRS Recovery 5 Years Year 1 2096 2. 3296 3 1996 4 1296 5 1296 6 596
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