Russell industries is considering replacing a fully depreciated machine that has the remaining useful life of 10 years with a newer more sophisticated machine. the new machine will cost $208,000 and will required 29,400 in installation costs. it will be depreciated under MARCS using a 5 year recovery period. (see the table for the applicable depreciation percentages) At 26,000 Increase in net working captial will be required to support the new machine. the firms managers plan to evaluate the potential replacement over a 4 year period. they estimate that your machine could be sold at the end of four years to the net 15,800 before taxes; the New machine at the end of four years will be worth 73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the propoed purchase of the nee machine. The firm is subject to a 40% take rate.

i Data Table (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% 6 5% 9% 8% 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% 9% 7% will be worth $73,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is The terminal cash flow for the replacement decision is shown below: (Round to the nearest do $ $ 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 $ III $