Discuss the effect of sale price on terminal cash flow

Assignment Help Finance Basics
Reference no: EM131108615

Looner Industries is currently analyzing the purchase of a new machine that costs $160,000 and requires $20,000 in installation costs. Purchase of this machine is expected to result in an increase in net working capital of $30,000 to support the expanded level of operations. The firm plans to depreciate the machine under MACRS using a 5-year recovery period and expects to sell the machine to net $10,000 before taxes at the end of its usable life. The firm is subject to a 40% tax rate.
a. Calculate the terminal cash flow for a usable life of 
(1) 3 years, 
(2) 5 years, and 
(3) 7 years.
b. Discuss the effect of usable life on terminal cash flows using your findings in part a.
c. Assuming a 5-year usable life, calculate the terminal cash flow if the machine 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.

Reference no: EM131108615

What was the rate of inflation

You earned 10.3 percent nominal rate over the past year, but find that your purchasing power in terms of real stuff you can buy with your money has increased only by 5.2 per

What is the maximum you should pay for gg company

You believe you can sell this stock for $50 two years from now, and it will pay a dividend of $1 this year and $1.10 next year. For a 14% discount rate, what is the maximum

What is the net present value of this investment opportunity

FIN 467- Assume your required internal rate of return on similar investments is 11 percent. What is the net present value of this investment opportunity? What is the going-i

Initial after-tax outlay-after-tax cost

Gerry, Inc. is considering a project that has an initial after-tax outlay or after-tax cost of $220,000. The respective future cash inflows from this 4 year project for year

Advantages of net present value-internal rate of return

Discuss the advantages of net present value versus the internal rate of return. Use the Internet and/or Ashford University Library and/or Mergent Online to look up and descri

What is the risk premium on this stock

Jerilu Markets has a beta of 1.09. The risk-free rate of return is 2.75 percent and the market rate of return is 9.80 percent. What is the risk premium on this stock? A. 6.47

Total return on the stock

You purchase 100 shares of Adams Trading Company stock today for $22.50 per share. At the end of one year, you collect a dividend of $2.75 and then sell the stock at $24.50

Is it a good or bad sign that the ratio increased

You are now ready to interpret the ratios that you have calculated. If a ratio increased from 2014 to 2015, why do you think that it increased? Is it a good or bad sign that

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd