Question
In: Finance
Daily Enterprises is purchasing a$ 9.6million machine. It will cost $54,000 to transport and install the...
Daily Enterprises is purchasing a$ 9.6million machine. It will cost $54,000 to transport and install the machine. The machine has a depreciable life of five years using straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of$ 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.)
Solutions
Expert Solution
Solution:
The Free cash flow for year 0 is
= Purchase cost of the machine + Transport and Installation costs
= $ 9,600,000 + $ 54,000 = $ 9,654,000
Free cash flow for year 0 = $ 9,654,000
The Incremental free cash flows for years 1 to 5 is = $ 2,625,780
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
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