Your company is considering the purchase of a new machine Af

Your company is considering the purchase of a new machine. After 4 years of operation, you would sell the machine for a salvage value of $48877. However, at that time the machine would not have been depreciated to a value of 0, but have a remnant book value of $11416. The operation of the machine requires additional NOWC of $47755, which would not change throughout the project. The firm\'s corporate tax rate is 40%. What is the project\'s Terminal Cash Flow?

Solution

Terminal cash flow = Salvage value + net working capital - tax ( salvage value - book value)

Terminal cash flow = 48877 + 47755 - 0.4( 48877 - 11416)

Terminal cash flow = 96,632- 0.4 ( 37,461)

Terminal cash flow = 96,632 - 14,984.4

Terminal cash flow = 81,647.6