Terminal cash flow -Various lives and sale prices

Looner Industries is currently analyzing the purchase of a new machine

Terminal cash flow Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $163,000 and requires $19,900 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,500 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the tablefor the applicable depreciation percentages) and expects to sell the machine to net $10,500 before taxes at the end of its usable life. The firm is subject to a 40% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,145 or (2) $169,000 (before taxes) at the end of 5 years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c. 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 5 years 20% 32% 19% 12% 12% 5% 7 years 14% 25% 18% 12% 9% 9% 9% 4% 10 years 10% 18% 14% 12% 9% 8% 7% 6% 6% 6% 4% 3 years 29% 45% 15% 7% Recovery year 4 6 9 10 Check