-A Corporation Is Evaluating the Relevant Cash Flows for a Capital

question 24

Multiple Choice

-A corporation is evaluating the relevant cash flows for a capital budgeting decision and must estimate the terminal cash flow. The proposed machine will be disposed of at the end of its usable life of five years at an estimated sale price of $2,000. The machine has an original purchase price of $80,000, installation cost of $20,000, and will be depreciated under the five-year MACRS. Net working capital is expected to decline by $5,000. The firm has a 40 percent tax rate on ordinary income and long-term capital gain. The terminal cash flow is ________.

• A) $5,800
• B) $7,800
• C) $8,200
• D) $6,200

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Definitions:

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