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 $210,000 and will require $30,800 in installation costs. It will be depreciated under MACRS using a? 5-year recovery period? (see the table for the applicable depreciation? percentages). A$26,000 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 $13,200 before? taxes; the new machine at the end of 4 years will be worth $80,000 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.

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

1 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% 9% 8%

7 9% 7%

8 4% 6%

9 6%

10 6%

11 4%

Totals 100% 100% 100% 100%

answer the following

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