Daily enterprises is purchasing a 9.8 million machine. It will cost $47,000 to t
ID: 2623457 • Letter: D
Question
Daily enterprises is purchasing a 9.8 million machine. It will cost $47,000 to transport and install the machine. This machine has a depriciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of 4.2 million per year along with incremental costs of $1.4 million per year. Daily marginal tax rate is 35%. You are forecasting incremental free cash flows for Daily enterprises. What are the incremental free cash flow associated with the new machine?
Explanation / Answer
Initila cost of machine = 9.8*1000000 + 47000=9847000
Annual depreciation = 9847000/5=$1969400
incremental free cash flow = After tax incremental income+ depreciation
incremental free cash flow = (4.2*1000000-1.4*1000000- 1969400)*(1-35%)+ 1969400=$2,509,290
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