Question

Daily Enterprises is purchasing a

$ 9.7$9.7

million machine. It will cost

$ 55 comma 000$55,000

to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of

$ 3.9$3.9

million per year along with incremental costs of

$ 1.4$1.4

million per year. If​ Daily's marginal tax rate is

35 %35%​,

what are the incremental earnings​ (net income) associated with the new​ machine?

Homework: Chapter 9 Quiz Save HW Score: 20%, 2 of 10 pts Score: 0 of 1 pt 2 of 10 (3 complete) X P 9-2 (similar to Question Help Daily Enterprises is purchasing a $9.7 million machine. It will cost $55,000 to transport and install the machine. The machine has a depreciable life of five years and will have no salvage value. The machine will generate incremental revenues of S3.9 million per year along with incremental costs of S1.4 million per year. If Daily's marginal tax rate is 35 %. what are the incremental earnings (net income) associated with the new machine? The annual incremental eamings are S(Round to the nearest dollar.) Enter your answer in the answer box and then click Check Answer. All parts showing Clear All Check Answer

Answer 1

particulars	0	1	2	3	4	5
cost	-9,700,000
additional cost	-55,000
income		3,900,000	7,800,000	11,700,000	15,600,000	19,500,000
cost		-1,400,000	-2,800,000	-4,200,000	-5,600,000	-7,000,000
Depreciation		-1,951,000	-1,951,000	-1,951,000	-1,951,000	-1,951,000
EBIT		549,000	3,049,000	5,549,000	8,049,000	10,549,000
Tax		-192,150	-1,067,150	-1,942,150	-2,817,150	-3,692,150
Net profit		356,850	1,981,850	3,606,850	5,231,850	6,856,850
incremental profits			1,625,000	1,625,000	1,625,000	1,625,000

Here income, is increased by 3.9 millions every year

Similarly the cost is also increased by $1.4 million every year

Depreciation = total cost – salvage / machine life = (9700000+55000)/5 = $1951000

EBIT = income- depreciation-cost

Tax = EBIT * 35%

Net profit = EBIT- tax.

Increment earnings = earnings of this year- earnings of last year

So the incremental earnings = $1,625,000.