What is Terminal Cash Flows In Capital Budgeting Analysis?
Append below the explanation of terminal cash flows and a simple example as illustration:
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Terminal Cash Flows:
Illustration: Company XYZ intends to buy a new machine to increase its present sales. The machine costs $200,000 with five years of useful life and its salvage value is $25,000. By buying this machine, the company will incur additional yearly working capital requirements of $10,000. Calculate the terminal cash flows. Solution: Terminal cash flows= Salvage value = $25,000 + working capital recovered of $10,000 = $35,000 |
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