Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Terminal cash flowReplacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with a newer,

image text in transcribed

Terminal cash flowReplacement 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 $205,000 and will require $29,000 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 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 $17,000 before taxes; the new machine at the end of 4 years will be worth $74,000 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 $ 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Renewable Energy Finance Funding The Future Of Energy

Authors: Charles W Donovan

2nd Edition

1786348594, 9781786348593

More Books

Students also viewed these Finance questions

Question

Repeat Problem 2.13 for the following data: p-945

Answered: 1 week ago

Question

Explain this statement: Goals are dreams with deadlines.

Answered: 1 week ago

Question

8.7 Evaluate at least five traditional training techniques.

Answered: 1 week ago

Question

8.5 Identify the five-step training process.

Answered: 1 week ago