Question

Daily Enterprises is purchasing a $10.55 million machine. It will cost $74,201.00 to transport and install the machine. The machine has a depreciable life of five years using the straight-line depreciation and will have no salvage value. The machine will generate incremental revenues of $4.36 million per year along with incremental costs of $1.24 million per year. Daily's marginal tax rate is 35.00% The cost of capital for the firm is 10.00% (answer in dollars..so convert millions to dollars) What is the year 0 cash flow for the project? Submit Answer format: Currency: Round to: 2 decimal places. What is the yearly cash flow from the project? Submit Answer format: Currency: Round to: 2 decimal places. The project will run for 5 years. What is the NPV of the project at the current cost of capital? Submit Answer format: Currency: Round to: 2 decimal places.

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A В 1 Purchase Price of Machine $10,550,000.00 $74,201.00 $10,624,201.00 2 Transport and installation Total Cost 4 -$10,624,201.00 Cash flow Year-o 6 a 7 8 b Incremental Revenue $4,360,000.00 $1,240,000.00 $2,124,840.20 $995,159.80 $348,305.93 $646,853.87 Incremental Cost Depreciation EBIT |Тax(35%) Net Income 10 11 12 13 14 $2,771,694.07 Yearly Cash Flow from the Project 15 16 17 Cost of capital 18 c. 10% 19 -$117,299.79 NPV of Project 20 21 22 23 st LO

Cell reference -

А В C 1 Purchase Price of Machine Transport and installation Total Cost 10550000 74201 2 4 C2+C3 =-C4 Cash flow Year-0 6 a 7 8 b Incremental Revenue Incremental Cost Depreciation EBIT Tax(35%) Net Income 4360000 1240000 |ЕC4/5 -C8-C9-C10 10 11 12 C11*0.35 -C11-C12 13 14 Yearly Cash Flow from the Project ЕC13+C10 15 16 17 Cost of capital 18 c. 0.1 19 C6+PV(C18,5,-C15,,0) NPV of Project 20 21 22 Ln

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.