Calculate the terminal cash flow of the machine

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Question - 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.

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: EM132932977

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