Terminal cash flowVarious lives and sale pricesLooner Industries is currently analyzing the purchase of a new machine that costs $156,000 and requires $19,600 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,500 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

Percentage by recovery year*
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				6%
11				4%
Totals	100%	100%	100%	100%

for the applicable depreciation percentages) and expects to sell the machine to net $9,500 before taxes at the end of its usable life. The firm is subject to a 40% tax rate.

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

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

c.Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1)

$8,780 or (2) $169,900 (before taxes) at the end of 5 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.

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	$