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Terminal cash flow: Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 1 0 years with
Terminal cash flow: Replacement decisionRussell Industries is considering replacing a fully depreciated machine that has a remaining useful life of years with a newer, more sophisticated machine. The new machine will cost $ comma
and will require $ comma
in installation costs. It will be depreciated under MACRS using ayear recovery periodsee the table
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for the applicable depreciation percentages A $ comma
increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over ayear period. They estimate that the old machine could be sold at the end of years to net $ comma
before taxes; the new machine at the end of years will be worth $ comma
before taxes. Calculate the terminal cash flow at the end of year that is relevant to the proposed purchase of the new machine. The firm is subject to a
tax rate.
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