Finance

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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 -

    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 -

    yes

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