mathai.com FIN 302A (4) Homework: Chapter 9 Save Score: 0 of 1 pt 1 of 3 (0 comp

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mathai.com FIN 302A (4) Homework: Chapter 9 Save Score: 0 of 1 pt 1 of 3 (0 complete) HW Score: 096, 0 P 9-2 (similar to) Question Help Daily Enterprises is purchasing a $10.2 million machine. It will cost $52,000 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 $3.9 million per year along with incremental costs of $1.2 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.) Corp Enter your answer in the answer box and then click Check Answer 2 All parts showing

Explanation / Answer

Total Cost of machine = $10,200,000 + $52,000 = $10,252,000

Depreciation per year = $10,252,000 / 5 = $2,050,400

Remember, it is asking for net income and not cash flows. If it had asked for cash flows, just add the depreciation to the net income.

Net Income Particulars Amount Incremental Earnings $3,900,000 Less: Incremental Costs $1,200,000 Less: Depreciation $2,050,400 Incremental Earnings before taxes $649,600 Less: Taxes @35% $227,360 Net Income $422,240

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