Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

cost of capital is not provided in the question, on my end either.... PTT-14 (similar to) Question Help Terminal cash flow-Various lives and sale prices

image text in transcribed

cost of capital is not provided in the question, on my end either....

PTT-14 (similar to) Question Help Terminal cash flow-Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $165,000 and requires $19,700 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,900 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages) and expects to sell the machine to net $9,600 before taxes at the end of its usable life. The firm is subject to a 40% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. C. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,235 or (2) $170,700 (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. Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 1 33% 14% 10% 45% 32% 25% 18% 15% 19% 18% 14% 7% 12% 12% 12% 5 9% 9% 5% 9% 8% 9% 7% 4% 6% 9 6% 6% 20% 2 3 4 12% 6 7 8 10

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

Modern Auditing

Authors: Graham Cosserat

1st Edition

0471810584, 9780471810582

More Books

Students also viewed these Accounting questions

Question

LO6 Describe how to choose among the recruitment sources.

Answered: 1 week ago