Question

Chester Corporation is considering purchasing a new dry ice machine for his packaging business. the new machine will cost $75,000 but Chester expects the new machine will lead to him increasing his packaging business by an additional 1,000 per year. Each package CHester sells generates $200 in sales revenue with an incremental cost of $90 each. What is the after-tax cash flow per year of purchaing the new equipment, assuming a tax rate of 40-percent and a salvage value of zero after the ten years?

Answer 1

Incremental revenue	$         2,00,000
(1000*$200)
Less:
Incremental Expenses	$             90,000
(1000*$90)
Depreciation expenseas	$               7,500
($75000/10)
Net Income Before Tax	$         1,02,500
Less:
Tax At 40%	$             41,000
Net Income	$             61,500
Add:
Deprteciation	$               7,500
Annual Cash Flow	$             69,000
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