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aev [14]
3 years ago
13

"Eastern Corporation has $21,000,000 in equipment that has a 15 year class life. The equipment is 8 years old. Eastern is sellin

g the equipment for $10,000,000. Eastern uses simplified straight line depreciation (zero salvage value) and has a marginal tax rate of 34%. What is the terminal cash flow? Assume no working capital."
Business
1 answer:
Alex787 [66]3 years ago
3 0

Answer:

terminal cash flow $932,000

Explanation:

21,000,000/15 = 1,400,000

1,400,000 x 8 = 11,200,000

<u>Net Book Value:</u> 21,000,000 - 11,200,000 = 9,800,000

Sale                                                                10,000,000

Gain                                                                   200,000

<u>We must pay taxes for the gain:</u>

200,000 x .34 = 68,000

<u>terminal cash flow:</u> proceeds - taxes = 10,000,000 - 68,000 = 932,000

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