Question

Daly Enterprises is purchasing a $10.1 milion machine. It wil cost $48,000 to teansport and install the machine. The machine has a depreciable iffe of five years and wil have no salvage value. The machine will generate incremental revenues of 54.2 millon per year along with incrertsental conts of 51.2 malion per year. If Oaif margital tax tale is 35%, what are the incremerial eamings (net income) associated with the new machine? The annual kcremental earnings are $ (Round to the nearest dolar.)

Answer 1

The annual incremental earnings associated with Daly Enterprises purchasing a new $10.1 million machine, after factoring in depreciation and taxes, would result in a loss of $474,240.

Step-by-step explanation:

When Daly Enterprises is purchasing a $10.1 million machine, the total cost of the machine after including transportation and installation is calculated by adding the purchase price with the transportation and installation costs:

Purchase price + Transport and installation cost = Total Cost
$10,100,000 + $48,000 = $10,148,000

Since the machine has a depreciable life of five years and no salvage value, the annual depreciation expense is:

Total Cost / Useful Life = Annual Depreciation Expense
$10,148,000 / 5 years = $2,029,600 per year

To calculate the incremental earnings (net income), we consider the incremental revenues and costs along with the tax and depreciation:

Incremental Revenues - Incremental Costs - Depreciation Expense = Pre-Tax Income
$5,420,000 - $5,120,000 - $2,029,600 = -$729,600

Pre-Tax Income × (1 - Tax Rate) = After-Tax Income
-$729,600 × (1 - 0.35) = -$474,240

So, the annual incremental earnings associated with the new machine would be a loss of $474,240 (rounded to the nearest dollar).