Question

dont know why question b is wrong

Score: 0 of 1 pt 4 of 13 0 complete) HW Score: 23.08%, 3 of 13 pts P 2-18 (similar to) EQuestion Help Nokela Industries purchases a $40.8 million cyclo-comverter. The cyclo-converter will be depreciated by $10.2 million per vear over four years, starting this year. Suppose Nokela's tax rate is 40% a What impact will the cost of the purchase have on eamings 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? Eamings will decrease by $6.1 milon 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 $4.1 millon. (Round to one decimal place)

Answer 1

Given,

Cash outflow in year 1 = $ 40.8 million

Depreciation = $ 10.2 million per year

Tax rate = 40%

Solution :-

(b) Depreciation = $10.2 million Tax Savings on – $10.2 million X 40% Depreciation - $4.08 million The amount of $ 4.08 million is the Tax saving each year from dyear a to year 4. In the first year, there is a cash out flow of $ 40.8 million. So, impact on the firm's cash flow in year 1 will be $36.72 million ($ 40.8 - $4.08) Thus, 6.7 mill lecim The impact on the firm's cash flow in year 7 is - $36.7 million (one decimal place) The impact on the firm's Cash Flow in Year a to year 4 is $4.08 million