ooner Industries is currently analyzing the purchase of a new machine that costs $161,000 and requires $19,700 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period for the applicable depreciation percentages) and expects to sell the machine to net $10,100 before taxes at the end of its usable life. The firm is subject to a 21% tax rate. a. Calculate the terminal cash flow for a usable life of (1) three years, (2) five years, and (3) seven years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,035 or (2) $170,200 (before taxes) at the end of five years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c. This is what I need / an am not understanding how to calculate in Excel: (THESE NUMBERS ARE INCORRECT) a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. Part 2 The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.) 3-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ 8,884 Total after-tax proceeds-new $ 18,984 + Change in net working capital $ 29,800 Terminal cash flow $ 48,784 Part 3 (Round to the nearest dollar.) 5-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ (224) Total after-tax proceeds-new $ 9,876 + Change in net working capital $ 29,800 Terminal cash flow $ 39,676 Part 4 (Round to the nearest dollar.) 7-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ (2,121) Total after-tax proceeds-new $ 7,979 + Change in net working capital $ 29,800 Terminal cash flow $ 37,779 Part 5 b. Discuss the effect of usable life on terminal cash flows using your findings in part a. (Select from the drop-down menus.) If the usable life is less than the normal recovery period, the asset has not been depreciated fully and a tax benefit may be taken on the loss; therefore, the terminal cash flow is higher Part 6 c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,035 or (2) $170,200 (before taxes) at the end of 5 years. Part 7 The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.) (1) Proceeds from sale of proposed asset $ 9,035 +/- Tax on sale of proposed asset $ 0 Total after-tax proceeds-new $ 9,035 + Change in net working capital $ 29,800 Terminal cash flow $ 38,835

ooner Industries is currently analyzing the purchase of a new machine that costs $161,000 and requires $19,700 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a five-year recovery period for the applicable depreciation percentages) and expects to sell the machine to net $10,100 before taxes at the end of its usable life. The firm is subject to a 21% tax rate. a. Calculate the terminal cash flow for a usable life of (1) three years, (2) five years, and (3) seven years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a five-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,035 or (2) $170,200 (before taxes) at the end of five years. d. Discuss the effect of sale price on terminal cash flow using your findings in part c. This is what I need / an am not understanding how to calculate in Excel: (THESE NUMBERS ARE INCORRECT) a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. Part 2 The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.) 3-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ 8,884 Total after-tax proceeds-new $ 18,984 + Change in net working capital $ 29,800 Terminal cash flow $ 48,784 Part 3 (Round to the nearest dollar.) 5-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ (224) Total after-tax proceeds-new $ 9,876 + Change in net working capital $ 29,800 Terminal cash flow $ 39,676 Part 4 (Round to the nearest dollar.) 7-year Proceeds from sale of proposed asset $ 10,100 +/- Tax on sale of proposed asset $ (2,121) Total after-tax proceeds-new $ 7,979 + Change in net working capital $ 29,800 Terminal cash flow $ 37,779 Part 5 b. Discuss the effect of usable life on terminal cash flows using your findings in part a. (Select from the drop-down menus.) If the usable life is less than the normal recovery period, the asset has not been depreciated fully and a tax benefit may be taken on the loss; therefore, the terminal cash flow is higher Part 6 c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,035 or (2) $170,200 (before taxes) at the end of 5 years. Part 7 The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.) (1) Proceeds from sale of proposed asset $ 9,035 +/- Tax on sale of proposed asset $ 0 Total after-tax proceeds-new $ 9,035 + Change in net working capital $ 29,800 Terminal cash flow $ 38,835

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Part 2

The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.)

		3-year
Proceeds from sale of proposed asset	$	10,100
+/- Tax on sale of proposed asset	$	8,884
Total after-tax proceeds-new	$	18,984
+ Change in net working capital	$	29,800
Terminal cash flow	$	48,784

Part 3

(Round to the nearest dollar.)

		5-year
Proceeds from sale of proposed asset	$	10,100
+/- Tax on sale of proposed asset	$	(224)
Total after-tax proceeds-new	$	9,876
+ Change in net working capital	$	29,800
Terminal cash flow	$	39,676

Part 4

(Round to the nearest dollar.)

		7-year
Proceeds from sale of proposed asset	$	10,100
+/- Tax on sale of proposed asset	$	(2,121)
Total after-tax proceeds-new	$	7,979
+ Change in net working capital	$	29,800
Terminal cash flow	$	37,779

Part 5

b. Discuss the effect of usable life on terminal cash flows using your findings in part a. (Select from the drop-down menus.) If the usable life is less than the normal recovery period, the asset has not been depreciated fully and a tax benefit may be taken on the loss; therefore, the terminal cash flow is higher

Part 6

c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $9,035
or (2) $170,200 (before taxes) at the end of 5 years.

Part 7

The following table can be used to solve for the terminal cash flow: (Round to the nearest dollar.)

		(1)
Proceeds from sale of proposed asset	$	9,035
+/- Tax on sale of proposed asset	$	0
Total after-tax proceeds-new	$	9,035
+ Change in net working capital	$	29,800
Terminal cash flow	$	38,835

Part 8

(Round to the nearest dollar.)

		(2)
Proceeds from sale of proposed asset	$	170,200
+/- Tax on sale of proposed asset	$	(33,845)
Total after-tax proceeds-new	$	136,355
+ Change in net working capital	$	29,800
Terminal cash flow	$	166,155

Part 9

d. Using your findings in part c., what is the effect of sale price on terminal cash flows? (Select from the drop-down menus.) The higher the sale price, the higher the terminal cash flow.

(Click on the icon here in order to copy the contents of the data table below into a spreadsheet.)
Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes
Recovery year
1
234567
2
8
9
10
11
Totals
3 years
33%
45%
15%
7%
Percentage by recovery year*
7 years
5 years
20%
14%
32%
19%
12%
12%
5%
25%
18%
12%
9%
9%
9%
4%
10 years
10%
18%
14%
12%
9%
8%
7%
6%
6%
6%
4%
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 tax purposes, be sure to apply the actual
unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year
convention.

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