Six years ago, XYZ Company invested $50353 in a new machinery. The investment in net working capital was $6107 which would be recovered at the end of the project. Today, XYZ Company is selling the machinery for $16955. Today, the book value of the machinery is $23124. The tax rate is 29 percent. What are the terminal cash flows in Year 6?
Terminal Cash flow in year 6 is calculated as follows:
Recovery of working capital = $6,107
Sale Proceeds (Net of Tax) = $18,744
Terminal Cash Flow = $24,851
Note:
Selling Price of machine = $16,955
Less: Book Value = $23,124
Loss on Sale of Machinery = $6,169
Tax Savings on loss @29% = $1,789
Net Proceeds from Sale = $16,955 + $1,789
= $18,744
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