Question

Daily Enterprises is purchasing a $ 9.8 million machine. It will cost $ 48 comma 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 $ 4.2 million per year along with incremental costs of $ 1.3 million per year. If​ Daily's marginal tax rate is 35 %​, what are the incremental earnings​ (net income) associated with the new​ machine?

Answer 1

Income Statement
Particulars	$
Incremental Revenues per year	4,200,000
Less: Incremental Costs per year	1,300,000
Earnings before Depreciation and Tax	2,900,000
Less: Depreciation	1,969,600
Earnings before Tax	4,869,600
Less: Tax at 35%	1,704,360
Incremental Earnings per year	3,165,240

Incremental earnings for the whole 5 years =  $3,165,240 * 5 = $15,826,200

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