Tango 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 $30,700 in installation costs. It will be depreciated under MACRS using a 5-year recovery period. A $25,000 increase in net working capital 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 the old machine could be sold at the end of 4 years for $15,600 before taxes; the new machine at the end of 4 years will be worth $66,000 before taxes. The firm is subject to a 25 percent tax rate.

a. What is the installed cost of the new machine?

b. What is the book value of the machine in 4 years?

c. What is the tax on the sale of the new machine?

d. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine