Terminal cash flowReplacement decision Russell Industries is considering replacing a fully depreciated machine that has a remaining useful life of 10 years with anewer, more sophisticated machine. The new machine will cost $208,000 and will require $30,900 in installation costs. It will be depreciated under MACRS using a5-year recovery period A $25,000 increase in net working capital will be required to support the new machine. Thefirm's managers plan to evaluate the potential replacement over a4-year period. They estimate that the old machine could be sold at the end of 4 years to net $16,300 beforetaxes; the new machine at the end of 4 years will be worth $70,000 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.

Table Info:

Recovery year

3 years

5 years

7 years

10 years

1

33

33%

20

20%

14

14%

10

10%

2

45

45%

32

32%

25

25%

18

18%

3

15

15%

19

19%

18

18%

14

14%

4

7

7%

12

12%

12

12%

12

12%

5

12

12%

9

9%

9

9%

6

5

5%

9

9%

8

8%

7

9

9%

7

7%

8

4

4%

6

6%

9

6

6%

10

6

6%

11

4

4%

Totals

100

100%

100

100%

100

100%

100

100%

*These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for taxpurposes, be sure to apply the actual unrounded percentages or directly applydouble-declining balance(200%) depreciation using thehalf-year convention.