Terminal cash flow:Various lives and sale pricesLooner Industries is currently analyzing the purchase of a new machine that costs

$164,000

and requires

$19,800

in installation costs. Purchase of this machine is expected to result in an increase in net working capital of

$29,900

to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table

LOADING...

for the applicable depreciation percentages) and expects to sell the machine to net

$9,700

before taxes at the end of its usable life. The firm is subject to a

21%

tax rate.

a. Calculate the terminal cash flow for a usable life of (1) three years, (2) five years, and (3) seven years.

b. Discuss the effect of usable life on terminal cash flows using your findings in part a.

c.Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1)

$9,190

or (2)

$169,600

(before taxes) at the end of five years.

d. Discuss the effect of sale price on terminal cash flow using your findings in part c.

a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years.

Part 2

The following table can be used to solve for the terminal cash flow:(Round to the nearest dollar.)

		3-year
Proceeds from sale of proposed asset	$
+/- Tax on sale of proposed asset	$
Total after-tax proceeds-new	$
+ Change in net working capital	$
Terminal cash flow

Terminal cash flow: Various lives and sale prices Looner industries is currently analyzing the purchase of a new machine that costs $164,000 and requires $19,800 in installation costs. Purchase of this machine is expectod to result in an increase in net working capital of $29,900 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period (see the table for the applicable depreciation percentages) and expects to set the machine to net $9.700 before taxes at the end of its usable life. The firm is subject to a 21% tax rate. a. Calculate the terminal cash flow for a usable life of (1) three years, (2) five years, and (3) seven years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a five-year usable life, calculate the terminal cash flow if the machine wore sold fo net (1) $9,190 or (2) $169,600 (before taxes) at the and of five years. d. Discuss the etfect of sale price on terminal cash flow using your findings in part c. a. Celculate the terminal cash flow for a usable life of (1) 3 years. (2) 5 years, and (3) 7 years. The following table can be used to soive for the terminal cash fow: (Round to the nearest dollac.) (Click on the icon here in order to copy the contents of the data table below into a spreatsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes - Inese percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200\%) depreciation using the half-year convention