Question

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 $207,000 and will require $30.800 in installation costs. It will be depreciated under MACRS using a 5-year recovery period (see the table E for the applicable depreciation percentages). A S21,000 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 $14,600 before taxes; the new machine at the end of 4 years will be worth S71.000 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.) Data Table Proceeds from sale of new machine Tax on sale of new machine (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a Total after-tax proceeds-new asset Proceeds from sale of old machine Tax on sale of old machine Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 10 years 10% 18% 14% 12% g% 8% 7% 7 years 14% Total after-tax proceeds-old asset Change in net working capital Terminal cash flow years 33% 45% 15% years 20% 32% 19% 12% 12% 5% Recovery year 18% 12% 9% 9% 6% 4% 100% 10 100% 100% 100% Totals Enter any number in the edit fields and then click Check Answer.

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Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E " ゴWrap Text ta copy ▼ в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard YX175 YO Alignment Number Cells Edting YP YR YS YT YU YV YZ 157 158 159 160 161 162 163 164 165 166 167 168 169 170 NOTE 1 NEW MACHINE COST MACRS 237800 (207000 +30800) DEPRECIATION BOOK VALUE COST -DEPRE 20 32 19 12 47560.00 76096.00 45182.00 28536.00 190240.00 114144.00 68962.00 40426.00 BOOK VALUE AT THE END OF 4 YEARS $ 40,426.00 S 71,000.00 S40,426.00 $ 30,574.00 S 12,229.60 NOTE 2SALE PRICE OF NEW MACHINE BOOK VALUE PROFIT ON SALE TAX OF PROFIT ON SALE 172 173 174 175 /4 ㅖ トトー NOTE 3 S 14,600.00 SALE PRICE OF OLD MACHINE BOOK VALUE PROFIT ON SALE TAX OF PROFIT ON SALE $ 14,600.00 $ 5,840.00 MIRR NPV IRR REPLACEMENT S i HPR GMAM LEAC MACRS LEASE- RATIOCASHBUDGET acc BOND (EPS EBIT REPLACEMENT STats NPV BETA LEVERED rences: DX15 福 130% 05:56 09-01-2019

Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E " ゴWrap Text ta copy." в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 Conditional Format eCell Insert Delete Format Paste Sort &Find & Format Painter Formatting as Table Styles2 Clear Clipboard YQ182 YO Alignment Number Cells Edting YP YR YS YT YU YV YZ ZA 176 TERMINAL CASH FLOW 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 11 r PROCEEDS FROM SALE OF NEW MACHINE TAX ON SALE OF NEW MACHINE TOTAL AFTER TAX PROCEEDS -NEW ASSET $71,000 $12,230 $58,770 A PROCEEDS FROM SALE OF OLD MACHINE TAX ON SALE OF OLD MACHINE TOTAL AFTER TAX PROCEEDS -OLD ASSET $14,600 5,840 $8,760 B CHANGE IN NET WORKING CAPITAL $ 21,000 C TERMINAL CASH FLOW 71,010 A-B+C MIRR NPV İRR , REPLACEMENT S HPR GMAM LEAC MACRS RATIOCASHBUDGET Wacc . BOND (EPS EBIT, REPLACEMENT : STats | NPV . BETA LEVERED rences: DX15 福 130% 05:56 09-01-2019