Homework Help: Finance

Posted by Whitney on Wednesday, February 23, 2011 at 11:59am.

3. Your firm is considering buying a new machine that costs $200,000, is expected to generate $110,000 in new revenue each year and will cost $45,000 a year to operate. If your firm's marginal income tax rate is 35% what is the Net Cash Flow your firm will realize from the new machine during the first year? Assume the MACRS depreciation rate for the machine for year 1 is 20%. Note - do not include the cost of the machine in your answer.

Finance - Lara, Sunday, March 4, 2012 at 4:42pm
The net operating cash flow generated year 1 is $ 85,500.

computed as follows:
Incremental income $ 110,000
Less Depreciation 40,000 ( 20% of 200,000)
Net Income after depreciation $ 70,000
Income Tax 35% $ 24,500 ( 35% of 70,000)
Net Income after Tax 45,500
Add : depreciation 40,000
Cash Flow Generated Year 1 85,500
Finance - will, Thursday, February 21, 2013 at 12:51pm
yes

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