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    PDF Corp: Terminal Cash Flow

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    PDF Corp. needs to replace an old lathe with a new, more efficient model. The old lathe was purchased for $50,000 nine years ago and has a current book value of $5,000. (The old machine is being depreciated on a straight-line basis over a ten-year useful life.) The new lathe costs $100,000. It will cost the company $10,000 to get the new lathe to the factory and get it installed. The old machine will be sold as scrap metal for $2,000. The new machine is also being depreciated on a straight-line basis over ten years. Sales are expected to increase by $8,000 per year while operating expenses are expected to decrease by $12,000 per year. PDF's marginal tax rate is 40%. Additional working capital of $3,000 is required to maintain the new machine and higher sales level. The new lathe is expected to be sold for $5,000 at the end of the project's ten-year life. What is the project's terminal cash flow?

    a) $3,000
    b) $5,000
    c) $6,000
    d) $8,000
    e) $4,500

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    https://brainmass.com/business/cash/pdf-corp-terminal-cash-flow-268769

    Solution Preview

    The terminal cash flows are
    1.From sale of lathe - The book value ...

    $2.19

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