Question

X P 9-2 (similar to) Question Help Daily Enterprises is purchasing a $10.2 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 $4.1 million per year along with incremental costs of $1.4 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.)

Answer 1

first let us know the annual depreciation = ($10,200,000+48,000) / 5 years

=>$2,049,600.

incremental revenue	4,100,000
less: incremental cost	(1,400,000)
less:depreciation	(2,049,600)
earnings before tax	650,400
less: tax @35%	(227,640)
annual incremental earnings	422,760