SellFridges is estimating the terminal cash flow associated with an investment project. The proposed machine costs $100,000, has installation costs of $20,000 and will be depreciated over a five-year life. In 5 years, at the end of the project, the machine will be sold at an estimated salvage value of $20,000. Net working capital of $6,000 is also expected to be recovered in the final year of the project. The corporate tax rate is 30%. The terminal cash flow is:
SellFridges is estimating the terminal cash flow associated with an investment project. The proposed machine costs $100,000, has installation costs of $20,000 and will be depreciated over a five-year life. In 5 years, at the end of the project, the machine will be sold at an estimated salvage value of $20,000. Net working capital of $6,000 is also expected to be recovered in the final year of the project. The corporate tax rate is 30%. The terminal cash flow is:
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 13P
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SellFridges is estimating the terminal cash flow associated with an investment project.
The proposed machine costs $100,000, has installation costs of $20,000 and will be
depreciated over a five-year life. In 5 years, at the end of the project, the machine will be
sold at an estimated salvage value of $20,000. Net working capital of $6,000 is also
expected to be recovered in the final year of the project. The corporate tax rate is 30%.
The terminal cash flow is:
（The correct answer is 20,000.When calculating the book value,it has 120,000 - (5 x 24,000)=0.
Depreciation is (Purchase price-salvage value)/useful life.I think the depreciation should be (120,000-20,000)/5=20,000.Why the accumulated depreciation is 5*24,000,not 5*20,000?
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