Terminal cash flow-Replacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer, more sophisticated machine. The new machine will cost $200,000 and will require $29,800 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table for the applicable depreciation percentages). A $25,000 increase in net working 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 $16,500 before taxes, the new machine at the end of 4 years will be worth $70,000 before taxes. Calculate the terminal cash flow at the end of year 4 that is relevant to the proposed purchase of the new machine. The firm is subject to a 40% tax rate. The terminal cash flow for the replacement decision is shown below: (Round to the nearest dollar.) Proceeds from sale of new machine $ 70000 Tax on sale of new machine $ 1 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 32% 25% 15% 19% 18% 7% 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 4 10 years 10% 18% 14% N , 2 , 3 Terminal cash flow c o h Totals - 100% 100% 100% 100% 100%