Question

Please help me solve the following:

Abraham Enterprises is replacing a machine that cost $30,000 three years ago with a new one that costs $75,000 today. The new machine will increase revenue by $20,000 each year for 5 years but also will have higher costs of $5,000. The firm is in the 40% tax bracket. Calculate the incremental after tax operating cash flow for the next 6 years.  

Answer 1

	Incremental Operating Cash Flow
		Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Total
a	Increase in revenue	$   20,000.00	$   20,000.00	$   20,000.00	$   20,000.00	$   20,000.00	$   20,000.00	$ 1,20,000.00
b	Less: Cost	$    -5,000.00	$    -5,000.00	$    -5,000.00	$    -5,000.00	$    -5,000.00	$    -5,000.00	$    -30,000.00
c	Less: Depreciation (75000/5)	$ -15,000.00	$ -15,000.00	$ -15,000.00	$ -15,000.00	$ -15,000.00	$ -15,000.00	$    -90,000.00
d	Income for tax purpose	$                   -	$                   -	$                   -	$                   -	$                   -	$                   -	$                     -
e	Less : Tax	$                   -	$                   -	$                   -	$                   -	$                   -	$                   -	$                     -
f	Income After Tax	$                   -	$                   -	$                   -	$                   -	$                   -	$                   -	$                     -
g	Add: Depreciation	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$      90,000.00
	Operating Cash Flow	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$   15,000.00	$      90,000.00
	Note: The question is not clear whether to compute annual incremental cash flow or over a period of 6 years of incremental cost.
	I have given both i.e. annual and total
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