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were sold to net (1) $9,000 or (2) $170,000 (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. LG6 8–21 Terminal cash flow—Replacement decision 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 (see Table 3.2 on page 100 for the
applicable depreciation percentages). A $25,000 increase in net working capital
will be required to support the new machine. The firm’s managers plans to evaluate the potential replacement over a 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. Calculate the
terminal cash flow at the end of year 4 that is relevant to the pro...
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