Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining unehudl life of 10 years with a newer, more sophisticated machine. The new machine will cost $197.000 and will require $30,600 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (ses the table for the applicable depreciation percentages) A$22,000 inc tworking capital will be required to support the new machine. The firm's managers plan 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 $15.600 before taxes, the new machine at the end of 4 years will be worth $74,000 before taxes Calculate the teminal cash flow at t end of year 4 that is relevant to the proposed purchase of the new machine The form is subject to a 40% tax rate The terminal cash flow for the replacement decision is shown below. (Round to the nearest dolar) $ Proceeds from sale of now machine Tax on sale of new machine Total after-tax proceeds-new asse Proceeds from sale of old machine To on sale of old machine Total after-tax proceeds-old asset Change in net working capital Tamal cash flow $ Data table (Click on the icon here in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Recovery year 1 2345 607 00 8 9 10 11 Totals 3 years 33% 45% 15% 7% 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% 100% 100% 100% 100% *These 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 Terminal cash flow Replacement decision Russed industries is considering replacing a hully depreciated machine that has a remaining used the of 10 years with a newer, more sophisticated machine The new machine will cost $197,000 and will require $30,600 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages) A $22.000 increase in not working capital will be required to support the new machine The B's managers plan 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 at the end of 4 years will be worth $74.000 before taxes Calculate the terminal cash flour a end of year & that is relevant to the proposed purchase of the new machine The firm is subject to a 40% taxa The terminal cash flow for the replacement decision is shown below: (Round to the nearest dollar.) Proceeds from sale of new machine Tax on sale of new machine Total after-tax proceeds-new asset Proceeds from sale of old machine Tax on sale of old machine Total after-tax proceeds-old asset Change in net working capital Terminal cash flow IA
