Question
Terminal Cash Flow Various Lives and Sale Prices Looner Industries is currently analyzing the purchase of a new machine that costs $160,000 and requires $20,000
Terminal Cash FlowVarious Lives and Sale Prices
Looner Industries is currently analyzing the purchase of a new machine that costs $160,000 and requires $20,000 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,000 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table below for the applicable depreciation percentages) and expects to sell the machine to net $10,000 before taxes at the end of its usable life. The firm is subject to a 40% tax rate.
Calculate the terminal cash flow for a usable life of 3 years, 5 years, and 7 years.
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