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a $9.8 million machine. It will cost $54,000 to transport and install the machin

ID: 2805558 • Letter: A

Question

a $9.8 million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable lifte of five years using incremental revenues of straight-line depreciation and will have no salvage value. The machine will million per year. Daly's associated with the new machine? $4. 1 million per year along with incremental costs of $1.3 marginal tax rate is 35%. You are forecasting incremental free cash flows for Daily Enterprises. What are the incremental free cash flows The free cash flow for year O will be Round to the nearest dollar) The free cash flow for years 1-5 will be $(Round to the nearest dollar.)

Explanation / Answer

free cash flow at 0

cost of machine

9800000

installation cost

54000

total free cash flow at year 0

9854000

incremental cash from year 1-5

incremental cash flow

4100000

incremental cost

1300000

incremental operating cash flow

2800000

less depreciation

1970800

operating profit

829200

less tax 35%

290220

net incremental income

538980

add depreciation

1970800

free cash flow

2509780

free cash flow at 0

cost of machine

9800000

installation cost

54000

total free cash flow at year 0

9854000

incremental cash from year 1-5

incremental cash flow

4100000

incremental cost

1300000

incremental operating cash flow

2800000

less depreciation

1970800

operating profit

829200

less tax 35%

290220

net incremental income

538980

add depreciation

1970800

free cash flow

2509780

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