Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a cleanroom in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $4,500,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of five years and will be depreciated over those five years. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 2? A. $1,398,000 B. $1,402,000 C. $2,098,000 D. $2,660,800
Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a cleanroom in the plant for the machine will cost an additional $3 million. The machine is expected to raise gross profits by $4,500,000 per year, starting at the end of the first year, with associated costs of $1 million for each of those years. The machine is expected to have a working life of five years and will be depreciated over those five years. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 2? A. $1,398,000 B. $1,402,000 C. $2,098,000 D. $2,660,800
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Cameron Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It
will cost $7,000,000 to buy the machine and $10,000 to have it delivered and installed. Building a
cleanroom in the plant for the machine will cost an additional $3 million. The machine is expected to
raise gross profits by $4,500,000 per year, starting at the end of the first year, with associated costs
of $1 million for each of those years. The machine is expected to have a working life of five years and
will be depreciated over those five years. The marginal tax rate is 40%.
What are the incremental free cash flows associated with the new machine in
year
2?
A. $1,398,000
B. $1,402,000
C. $2,098,000
D. $2,660,800
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