Question

Daily Enterprises is purchasing a $11,000,000 machine. The machine will be depreciated using straight-line depreciation over its 6 year life and will have no salvage value. The machine will generate revenues of $7,000,000 per year along with fixed costs of $1,000,000 per year. If Daily's marginal tax rate is 36%, what will be the cash flow in each of years 1 to 6 (the cash flow will be the same each year)? Enter your answer rounded to the nearest whole number. Enter your answer below. 4500000 Correct response: 4,500,000+1 If the discount rate is 14%, what is the NPV of the project? The cash flow each year is $4,500,000. Enter your answer rounded to the nearest whole number. Enter your answer below. 6499004 Correct response: 6,499,004+10 Should Daily accept or reject the project (choose one)? Enter your answer below. Accept Reject Correct response: Accept

Answer 1

Let breakeven revenues be x

Hence,
NPV=0
=>-11000000+((x-1000000-11000000/6)*(1-36%)+11000000/6)/14%*(1-1/1.14^6)=0
=>x=4388644.46