The Target Copy Company is contemplating the replacement of its old printing machine with a new...

80.2K

Verified Solution

Question

Finance

The Target Copy Company is contemplating the replacement of itsold printing machine with a new model costing $ 715. The newmachine will operate for 3 years and then project will be shut downand all equipment sold. The old machine, which originally cost $518, has 2 years of depreciation remaining and a current book valueof 22% of the original cost. The old machine has a current marketvalue of $ 268 and should be worth $ 204 at the end of 3 years. Thenew printing machine could be sold for $ 319 in 3 years. If we buythe new machine our inventory levels will go from $600 to $900.Inventory levels will return to normal at the end of the project.Our annual sales will go from $15,000 to $20,000. Target'scorporate tax rate is 25 percent. Both machines are in the 3-yearMACRS class, with rates of 33% for year 1, 45% for year 2, 15% foryear 3, and 7% for year 4. What are the expected Terminal CashFlows at the end of year 3, if we replace the old printingmachine?

Answer & Explanation Solved by verified expert

4.5 Ratings (806 Votes)

The expected Terminal Non operating Cash Flows at the end of year 3 if we replace the old printing machine will be made up of Post tax salvage value of new machine Sale value See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

The Target Copy Company is contemplating the replacement of itsold printing machine with a new model costing $ 715. The newmachine will operate for 3 years and then project will be shut downand all equipment sold. The old machine, which originally cost $518, has 2 years of depreciation remaining and a current book valueof 22% of the original cost. The old machine has a current marketvalue of $ 268 and should be worth $ 204 at the end of 3 years. Thenew printing machine could be sold for $ 319 in 3 years. If we buythe new machine our inventory levels will go from $600 to $900.Inventory levels will return to normal at the end of the project.Our annual sales will go from $15,000 to $20,000. Target'scorporate tax rate is 25 percent. Both machines are in the 3-yearMACRS class, with rates of 33% for year 1, 45% for year 2, 15% foryear 3, and 7% for year 4. What are the expected Terminal CashFlows at the end of year 3, if we replace the old printingmachine?