Question

Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $5,000,000

to buy the machine and $15,000 to have it delivered and installed. Building a clean room in the plant for the machine will cost an additional​ $3 million. The machine is expected to raise gross profits by $3,500,000 per​ year, starting at the end of the first​ year, with associated costs of​ $1 million for each of those years. The machine is expected to have a working life of five years and will be depreciated over those five years. The marginal tax rate is​ 40%. What are the incremental free cash flows associated with the new machine in year​ 2?

A.$1,003,000

B.$997,000

C.$1,901,200

D. $1,497,000

Answer 1

What are the incremental free cash flows associated with the new machine in year​ 2?
=(3500000-1000000-5015000/5)*(1-40%)+5015000/5
=$19,01,200