Question

Need help with this Finance question. Thanks for the help.

Daily Enterprises is purchasing a $10.1 million machine. It will cost $49,000 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 $1.2 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.)

Answer 1

Time line		0		1	2	3	4	5
Cost of new machine		-10149000
=Initial Investment outlay		-10149000
Sales				4100000	4100000	4100000	4100000	4100000
Profits	Sales-variable cost			2900000	2900000	2900000	2900000	2900000
-Depreciation	Cost of equipment/no. of years			-2029800	-2029800	-2029800	-2029800	-2029800
=Pretax cash flows				870200	870200	870200	870200	870200
-taxes	=(Pretax cash flows)*(1-tax)			565630	565630	565630	565630	565630
+Depreciation				2029800	2029800	2029800	2029800	2029800
=after tax operating cash flow				2595430	2595430	2595430	2595430	2595430
+Tax shield on salvage book value	=Salvage value * tax rate							0
=Terminal year after tax cash flows								0
Total Cash flow for the period			-10149000	2595430	2595430	2595430	2595430	2595430