A new machine\'s price is $50,000 plus additional $10,000 for shipping and insta

Question

A new machine's price is $50,000 plus additional $10,000 for shipping and installation. The machine falls into the MACRS three year class, and hence the tax depreciation allowances are .33, .45 and .15 in Years 1,2 and 3 respectively. The machine will be sold at the end of tree years for $20,000. the machine will have no effect on revenue, but will save $20,000 per year in before-tax operating costs. The firm's tax rate is 40% and its appropriate cost of capital is 10%,
What is the terminal cash flows at the end of year 3?

possible answers:
$20,000
$35,000
$13,680
$15,600

Explanation / Answer

$20,000

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