Terminal cash flow-replacement decision

Assignment Help Financial Management

Reference no: EM131938676

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 $196,000 and will require $30,400 in installation cost. It will be depreciated under MACRS using a 5-year recovery period:

Year-1: 20%

Year-2: 32%

Year-3: 19%

Year-4: 12%

Year-5: 12%

Year-6: 5%

A $28,000 increase in net working capital will be required to support the new machine. The firm's management plans to evaluate the potential replacement over a 4-year period. They estimate that the old machine could be sold at the end of the 4 years to net $16,600 before taxes, the new machine at the end of 4 years will be worth $72,000 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.

a) Proceeds from sale of new machine?

b) Tax on sale of new machine?

c) Total after tax proceeds new-asset?

d) Proceeds from sale of old machine?

e) Tax on sale of old machine?

f) Total after tax proceeds old asset?

g) Change in net working capital?

h) Terminal cash flow?

Reference no: EM131938676

Questions Cloud

The two projects mutually exclusive or independent : Determine whether the two projects mutually exclusive or independent.

Role in ethics and sustainable positive social change : How do finance and accounting play a role in ethics and sustainable positive social change?

Pending transaction that has two potential targets : Director of Accounting & Controls for Company XYZ and your boss the VP/Controller has asked you to review a pending transaction that has two potential targets.

Consider spot rates for three zero-coupon bonds : Consider spot rates for three zero-coupon bonds: r(1) = 3%, r(2) = 4%, and r(3) = 5%. Which statement below is correct?

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,

Estimate the average profit and probability of loss policy : Develop and run an ARENA model to estimate the average profit and the probability of loss per policy.

About export and import procedures and policies : Write a conclusion statement about export and import procedures and policies.

Cost of equity with and without flotation : What is the company's cost of common equity if all of its equity comes from retained earnings?

Estimate of callahan cost of common equity : If you have equal confidence in the inputs used for the three approaches, what is your estimate of Callahan's cost of common equity?

User Account

All Pages