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

question 110

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 $15,000. 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) $24,000
• B) $16,000
• C) $14,000
• D) $26,000

---

Definitions:

Creative Destruction

A process through economic innovation in which older models or structures are destroyed to make way for new advancements.

Diffusion

The process by which a technological innovation, cultural trend, or new idea spreads through a population or society.

Innovation

The act of introducing something new or improving an existing product, service, or process to enhance productivity or create value.

Entrepreneurs

Individuals who create new businesses, bearing most of the risks and enjoying most of the rewards.