Calculate the terminal cash flow at the end of year 4 that, Ask an Expert

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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 $200,000 and will require $30,000 in installation costs. It will be depreciated under MACRs using a 5 year recovery period. A $25,000 increase in net working capital will be required to support the new machine. The firm's managers plan to evaluate the potential replacement over 4 year period. They estimate that the old machine could be sold at the end of 4 years to net $15,000 before taxes; the new machine at the end of 4 years will be worth $75,000 before taxes. find out 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 40% tax rate.

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