Terminal Cash Flow - Replacement decision Russell Industries is considering replacing a fully depreciated machine having a remaining useful life of 10 years, with a newer more sophisticated machine. The new machine will cost $200,000 and will require $30,000 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 firm plans 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 $15,000 before taxes. The new machine 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 21 percent tax rate on both ordinary and capital gains income.

see table 4.2 for the application depreciation percentage

please shoe step by step

no excel