Daily Enterprises is purchasing a $10.1 million machine. It will cost $46,000 to
ID: 2786624 • Letter: D
Question
Daily Enterprises is purchasing a $10.1 million machine. It will cost $46,000 to transport and install the machine. The machine has a depreciable life of five years usingstraight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.1million per year along with incremental costs of $1.4 million per year. Daily's marginal tax rate is 35%.You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows associated with the new machine?
The free cash flow for year 0 will be $_________. (Round to the nearest dollar.)
Free Cash Flow Formula = After tax earning + depreciation - capital expenditures in nwc
Explanation / Answer
Depreciation = (10100000 + 46000) / 5 = 2029200
After tax earning = (4100000 - 1400000 - 2029200)*(1-35%) = 436020
Free cashflow = 436020
Capital expenditure is impacted as depreciation expense for the 5 years. Hence they are not considered
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