Question

Daily Enterprises is purchasing a $ 10.3 million machine. It will cost $ 45 comma 000 to transport and install the machine. The machine has a depreciable life of five years using​ straight-line depreciation 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.​ 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 ​$ nothing. ​(Round to the nearest​ dollar.) The free cash flow for years 1dash5 will be ​$ nothing. ​ (

Answer 1

Time line		0	1
Cost of new machine		-10345000
=a. Initial Investment outlay		-10345000
Sales			4300000
Profits	Sales-variable cost		5600000
-Depreciation	Cost of equipment/no. of years		-2069000
=Pretax cash flows			3531000
-taxes	=(Pretax cash flows)*(1-tax)		2295150
+Depreciation			2069000
=b. after tax operating cash flow			4364150