Daily Enterprises is purchasing a $9.6 million machine. It will cost $48,000 to

Question

Daily Enterprises is purchasing a $9.6 million 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 salvage value. The machine will generate incremental revenues of $4.3 million per year along with incremental costs of $1.3 million per year. If Daily's marginal tax rate is 35%. what are the incremental eamings (net income) associated with the new machine? The annual incremental earnings are (Round to the nearest dollar.)

Explanation / Answer

Incremental earnings=(Incremental revenues-Incremental Costs-Depreciaiton of Machine-Transportation cost capitalized)*(1-tax rate)=(4.3-1.3-9.6/5-48000/(5*10^6))*(1-35%)=$0.69576 million

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