Question: I need help with this problem. Terminal cash flowReplacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life

 I need help with this problem. Terminal cash flowReplacement decision RussellIndustries is considering replacing a fully depreciated machine that has a remaining

I need help with this problem.

useful life of 10 years with a newer. more sophisticated machine. Thenew machine will cost $201,000 and will require $30,800 in installation costs.

Terminal cash flowReplacement 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 $201,000 and will require $30,800 in installation costs. It will be depreciated under MACRS using a 5year recovery period [see the table a for the applicable depreciation percentages). A $23,000 increase in net working capital will be required to support the new machine. The tin'n'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 $13,600 before taxes: the new machine at the end of4 years will be worth $?0,000 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 rm is subject to a 40% tax rate. Proceeds from sale of new machine 375 79.000 Tax on sale of new machine Total after-tax proceedsnew asset 9a Proceeds from sale of old machine 93 Tax on sale of old machine Total after-tax proceeds-old asset 9a Change in net working capital Terminal cash flow $ Percentage by recovery year* Recovery year 3 years 5 years 7 years 10 years 33% 20% 14% 10% 45% 32% 25% 18% 15% 19% 18% 14% 7% 12% 12% 12% 12% 9% 9% 5% 9% 8% 9% 7% 4% 6% 6% 10 6% 11 4% Totals 100% 100% 100% 100%

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