Calculate the terminal cash flow of the machine

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WQ Limited has to evaluate whether it should invest in a machine that costs $100,000. The machine would be fully depreciated over ten years to zero value using the straight-line depreciation method. The company believes that at the end of five years, it will scrap the machine with no proceeds.

Problem 1: With the new machine, the company projects that it will be able to generate an additional $50,000 annually in sales revenue, while its costs are an additional $30,000 annually. The company would also need an additional net working capital of $10,000. The company's cost of capital is 18% and tax rate is 12%. Calculate the terminal cash flow of the machine.

1) $0

2) $8,000

3) $10,000

4) None of the above options.

Reference no: EM132904174

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