Because the present machine would net 0 at

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Unformatted text preview: ate values into the format in Table 8.10 results in the terminal cash inflow of $55,000. After-tax proceeds from sale of proposed machine Proceeds from sale of proposed machine Tax on sale of proposed machine Total after-tax proceeds—proposed After-tax proceeds from sale of present machine Proceeds from sale of present machine Tax on sale of present machine Total after-tax proceeds—present Change in net working capital $50,000 12,000 $38,000 $ 0 0 0 17,000 Terminal cash flow $55,000 Review Question 8–15 Explain how the terminal cash flow is calculated for replacement projects. LG4 LG5 LG6 8.6 Summarizing the Relevant Cash Flows Hint Capital expenditures are critical to a firm’s success, and these funds are usually limited. Because of this, the process of determining cash flows should be finely tuned so that it is both objective and realistic. EXAMPLE The initial investment, operating cash inflows, and terminal cash flow together represent a project’s relevant cash flows. These cash flows can be viewed as the incremental after-tax cash...
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This document was uploaded on 01/19/2014.

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