Question

Nokela Industries purchases a $43.2 million cyclo-converter. The cyclo-converter will be depreciated by $10.8 million per year over four years, starting this year. Suppose Nokela's tax rate is 25% a. What impact will the cost of the purchase have on earnings for each of the next four years? b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? a. What impact will the cost of the purchase have on earnings for each of the next four years? Earings will by million each year for four years. (Select from the drop-down menu and round to one decimal place b. What impact will the cost of the purchase have on the firm's cash flow for the next four years? The impact on the firm's cash flow in year 1 is $ million (Round to one decimal place.) The impact on the firm's cash flow in years two through four is 5 million (Round to one decimal place.

with financal cal

Answer 1

Depreciation will reduce the earning by $10.8 million Tax shield would be $10.8*.25 a) 2.70 million Reduce by 8.1 million each year for four years b) First year cash flow will get impacted by purchase and tax shield -43.2+10.8.25 -40.5 The impact on the firm's cash flow in year 1 is $-40.5 million The impact on the firm's cash flow in years two through four is $2.7 million