Question

Daily Enterprises is purchasing a $13,000,000 machine. The machine will be depreciated using straight-line depreciation over its 9 year life and will have no salvage value. The machine will generate revenues of $10,000,000 per year along with costs of $1,500,000 per year.

If Daily's marginal tax rate is 25%, what will be the cash flow in each of years 1 to 9 (the cash flow will be the same each year)?

Answer 1

Daily Enterprises will have an annual cash flow of $6,736,111.11 for each of the 9 years after accounting for revenue, costs, depreciation, and taxes.

Step-by-step explanation:

The question asks us to calculate the annual cash flow for Daily Enterprises given the purchase of a machine, its revenue generation, associated costs, and depreciation, while considering the tax factor. The machine is valued at $13,000,000, depreciated over 9 years with no salvage value, generating $10,000,000 in revenue and incurring $1,500,000 in costs annually. With a tax rate of 25%, the cash flow each year will be the same for years 1 to 9.

Calculation:

1. 
   
3. 
   
5. 
   
7. 
   
9. 
   

Thus, Daily Enterprises will have an annual cash flow of $6,736,111.11 for each of the 9 years.