Terminal cash flowlong dash—Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $ 165 comma 000$165,000 and requires $ 19 comma 600$19,600 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $ 29 comma 800$29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table LOADING... for the applicable depreciation percentages) and expects to sell the machine to net $ 9 comma 500$9,500 before taxes at the end of its usable life. The firm is subject to a 40 %40% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $ 9 comma 230$9,230 or (2) $ 171 comma 000$171,000 (before taxes) at the end of 5 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 $ Terminal cash flow $
Terminal cash flowlong dash—Various lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs $ 165 comma 000$165,000 and requires $ 19 comma 600$19,600 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $ 29 comma 800$29,800 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table LOADING... for the applicable depreciation percentages) and expects to sell the machine to net $ 9 comma 500$9,500 before taxes at the end of its usable life. The firm is subject to a 40 %40% tax rate. a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years. b. Discuss the effect of usable life on terminal cash flows using your findings in part a. c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1) $ 9 comma 230$9,230 or (2) $ 171 comma 000$171,000 (before taxes) at the end of 5 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 $ Terminal cash flow $
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
Related questions
Question
Terminal cash
for the applicable depreciation percentages) and expects to sell the machine to net
flowlong dash—Various
lives and sale prices Looner Industries is currently analyzing the purchase of a new machine that costs
$ 165 comma 000$165,000
and requires
$ 19 comma 600$19,600
in installation costs. Purchase of this machine is expected to result in an increase in net working capital of
$ 29 comma 800$29,800
to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period (see the table
LOADING...
$ 9 comma 500$9,500
before taxes at the end of its usable life. The firm is subject to a
40 %40%
tax rate.a. Calculate the terminal cash flow for a usable life of (1) 3 years, (2) 5 years, and (3) 7 years.
b. Discuss the effect of usable life on terminal cash flows using your findings in part a.
c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine were sold to net (1)
$ 9 comma 230$9,230
or (2)
$ 171 comma 000$171,000
(before taxes) at the end of 5 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
|
$
|
|
|
Terminal cash flow
|
$
|
|
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