Daily Enterprises is purchasing a $9.5 milion machine. It will cost $48,000 to t
ID: 2794009 • Letter: D
Question
Daily Enterprises is purchasing a $9.5 milion machine. It will cost $48,000 to transport and install the machine. The machine has a depreciable life of five years and will have no savage value. The machine will generate incremental revenues of $3.9 million per year along with incremental costs of $1.4 million per year. If Daily's marginal tax rate is 35%, what are the incremental earnings (net income) associated with the new machine? The annual incremental earnings are (Round to the nearest dollar.)Explanation / Answer
The annual incremental earnings associated with the new machine
= (Incremental Revenue - Incremental cost) * (1-Tax rate)
Where,
Incremental Revenue = $3.9 million per year
Incremental costs = $1.4 million per year
And Marginal Tax rate of the company = 35%
Therefore
The annual incremental earnings = ($3.9 million -$1.4 million) * (1 - 0.35)
=$2.5 million * 0.65
= $1.625 million per year
The annual incremental earnings associated with the new machine is $1.625 million per year
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