Question

Daily Enterprises is purchasing a $9.5 million machine. It will cost $51,000 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 $4.1 million per year along with incremental costs of $1.1 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 ​$_________. (Round to the nearest​ dollar.)

The free cash flow for years 1–5 will be ​$_________.(Round to the nearest​ dollar.)

Answer 1

Solution:- Given in Question-

Machine cost = $9.5 Million

Transport and Installing cost = $51,000

To calculate Free cash flow in year 0-

Free cash flow in year 0 = Machine Cost + Transport and Installing cost

Free cash flow in year 0 = -$95,00,000 - $51,000

Free cash flow in year 0 = -95,51,000

To calculate Free cash flow in year 1 to 5-

Free cash flow from year 1 to 5 = $26,18,570.

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