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Terminal cash flow: Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $20,200 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 (see the table for the applicable depreciation percentages) and expects to sell the machine to net $10,300 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) $8,910 or (2) $170,800 (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.

Terminal cash flow: Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $20,200 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 (see the table for the applicable depreciation percentages) and expects to sell the machine to net $10,300 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) $8,910 or (2) $170,800 (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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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K Terminal cash flow: Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $20,200 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 (see the table for the applicable depreciation percentages) and expects to sell the machine to net $10,300 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) $8,910 or (2) $170,800 (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. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. 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 +/- Tax on sale of proposed asset Total after-tax proceeds-new + Change in net working capital View an example Get more help. $ $ $ $ Clear all Check answer
Transcribed Image Text:K Terminal cash flow: Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $158,000 and requires $20,200 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 (see the table for the applicable depreciation percentages) and expects to sell the machine to net $10,300 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) $8,910 or (2) $170,800 (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. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. 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 +/- Tax on sale of proposed asset Total after-tax proceeds-new + Change in net working capital View an example Get more help. $ $ $ $ Clear all Check answer
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