Question

Daily Enterprises is purchasing a $11,000,000 machine. The machine will be depreciatod using straight-line dopreciation over its 5 year lile and wil have no salvage value. The machine will generate revenues of $8,500,000 per year along with costs of $1,500,000 per yoar. If Daly's marginal tax rate is 36%, What will be the canh flow in each of years 1 to 5 (the cash flow will be the same aach year?? Enter your answer rounded to the nearest whole number.

Answer 1

The annual cash flow for Daly Enterprises, after accounting for revenues, costs, depreciation, and taxes, is $3,072,000.

Step-by-step explanation:

Daly Enterprises is purchasing an $11,000,000 machine with a straight-line depreciation over a 5-year life and no salvage value. To find the annual cash flow for Daly Enterprises, we must consider the annual revenue, annual costs, depreciation expense, and tax effects.

The machine generates $8,500,000 revenue per year and incurs costs of $1,500,000 per year. The yearly depreciation expense is the cost of the machine ($11,000,000) divided by the useful life (5 years), which equals $2,200,000. Pre-tax income is calculated by subtracting both the costs and depreciation from the revenue ($8,500,000 - $1,500,000 - $2,200,000 = $4,800,000). Finally, we account for taxes by multiplying the pre-tax income by (1 - tax rate); here, the tax rate is 36%, so the calculation is $4,800,000 x (1 - 0.36) = $3,072,000.

Thus, the annual cash flow from the machine for Daly Enterprises, pre-taxes and after accounting for depreciation, is $3,072,000.