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 $54105. However, at that time the machine would not have been depreciated to a value of 0, but have a remnant book value of $24236. The operation of the machine requires additional NOWC of $25751, which would not change throughout the project. The firm\'s corporate tax rate is 40%. What is the project\'s Terminal Cash Flow?

Solution

Computation of Terminal cash flow :

Salvage value = $54,105

Remanant book value = $24,236

NOWC savings = $25,751

Tax rate = 40%

Terminal cash flow = (Salvage value - Book value) * (1-Tax rate) + NOWC savings

= ($54,105 - $24,236) * (1-40%) + $25,751

= $17,921 + $25,751

= $43,672